THE THEORY OF PRICE Fourth Edition GEORGE J. STIGLER University uf Chicago MACMILLAN PUBLISHING COMPANY PUBLISHERS,CUINERINES Intzoduction to Economie Analysis 1 Prices and the Enterprise Economy 11 Consumer Behavior 19 The Theory of Usility 42 Pricing with Limited Supplies 77 ‘The Supplies of Produetive Services 97 Costs and Production 111 Production; Diminishing Returns 128 Production: Returns to Seale 150 Additional Top The General Theory of Competitive Prices 178 The Theory of Monopoly 197 Oligopoly, Cartels, and Mergers 221 ~ in Production and Costs 165, ‘The Economies of Information 236 ‘The Demand for Productive Services 248on conics Adam Smith | |repli tte cis which we and our employes think ae ae tate What ae they? The ane ee mbar ced etsy oe thd eerie tha he tery sry aye pple dhl thy) thatthe tec does mote than tt eas To pt how ‘consis (and maken) wl Adve Cony as he post ih ging han et fo etme Bu tm yah es ong cnmotce Om an atomic ich pss S75 310 ‘in washing ain, pent i rae a So ny pn. he ‘ory pros, wl cach refreshes pin In aoe ‘ethan when buying a wshing oc A pean an ey oping tay vit t aomebic deat ap ee applic ses as ‘ent coy shaping may’ vit te ste Jas nd owe fnplince stre— hut each ee th sine ml sca ont ere iaing the aoe. Te tebe imple, amd the ace etait He peony wndrving the poston sh ‘Api, se hayes wll ch refx how pens om eons vic ate more o Thc cos any sc ws gts ee tit Tigh relate to other see pre wll a enn ayes wl search ono id's ower pce’ othe they pc hal the ane Fries of wating chines oie sy el ats wll sy ae Clave to the sve) thn te pcs f autrmatn This to tstabi--and much lesen athe Ut pedcion Sapp we mae the tote an! find Sat the prions of the thony ae iT ey the othr wo ngetons tha ee "asa a ase te vee. Tae cms as nl een ating seas slly"—uhich is smc way sf tying tha he ha been mei ig. [The asm foe inesng uy wile dsc ia Chapt Infonet es wont he sm pase The comer have bea tet atach9 wn shemsaning to con te ets ‘tu fave fen contd de the Uap tS Fries of rosie wig chins woe han enn al Tet ow atl it the the. The sad isi ease ‘fsa dopeson the tet of wate sanded So ono a fan sl hye ge af the nr Sela etn 5 Cleat those data ae gremest wih options The pes of “tedious te la led tev now desenes nice Haye sda the fst were ale for thc answers aaron: Tiss optan nef caec the iy was Cote ft apd he fee tho nought a to stsnay forthe ear (conoma cr neem) dese whe Sn lg he tthe ea ep that here ae ti ma es dna tat cn be wolf ete retiane The reader cn go st fis eny ad cle pes of aoe aod washing acne or ce the georal chery apps to a homngsveonps cs ohaes tnt fring kn The are many ober thle prteioes of the thay So. comyetet seas nc et, sds ot ep ees [ister econom o pays on Kn anyeay. henge sy not ho Spe oe nase ng cn go wrong whofe on) Caney thoy eee {nan non Lette reac yt cones aera apni of he fac hes of waking Pcs ay vlately ot than pet ‘utomotlos He ty coe up ila igs a he mre epee te onmatys elas pce vies, uch sen oi oar stn a tak the sae pradtin. But te te fom the fat ht thas no {Ege hass hsmatne explain ilften be wag he pc of ‘Meir vrs oh fe than that ts, awh sop ots ew per found i mtx cntatcin fiber. which in ler ero Sige tha the sewere amount apo cn 8 comm gone the Science as Fictionapply toa faty lrg meer of psi evens Most of the anguish ‘ht peonle Have with scene ths sce hans ese fo pepe tes are moder inept st to mite up epi ail les for example the Dow one nde fsck pot also gary 112 I even ear Fors {enna porn tae up ad ruc for etme, bones declines alsnys eu in ekbwmered_ year.) The mba the ta ‘arctic is mote dict to ashe Tred the comatose vcw, impose. Frey ven cry itti to which try cane pli ast ther ec am ya, Ce potion ft ‘umes cans more sl for oer rice when th expends ihe omit are ager Does te apy ray fm vali fot tan wh wes oy someting the moran afer 2 Men spl Dees it apy erally tothe mam wh ets things "whole Ho ie roberta ora the yng wan ad gone wean wo gel ek the series of fstice of the pene? Or doce Wap to he Iitonaire al the psp secangs cup sae tote se mah ‘tht buying a eal with sme matey rom expense vest Ot Ciesy a peer hes ss re a sad details o ean rposubly he general Vet only peal hese wea at eta {hore ae the oy vl hes, even they ee weeny ce oppose to uses reeceruble esse tebe fortune ak ch 1 shat () eons spat a 2 poop ad eine he tank or (spend my deshng ete im cay T nest thay ‘Spa a ther eo hore rng ots fates in sees Fntend to pp th theory nly ace Si a eine de s IWant stan he a "and tees the "they: Lato sa ly tat Saban fies ie net eck to specie ttt Ie eka a ‘nivance, But the hry syst ation of 2 para verry leet eae to os sly eas pce re, Tam est pi ‘ven presi tants ah gt sme en ot i, Toe the acetate fo comet inne theory this fat that heoeecannct be elsie™ the se at Heng scot Aesrpine 3 source of ends har nd foto, Te ney Incorporated inthe theory? Shen we, Lo tevert ain to he search for it pce, emp heaton of cnc tae rae Seton tr year of formal obation ose veda The sn The wer of theory hs 8 smpler ise motto reason why, his ‘ots snd ht ph mea i the ete sts hu hee Some Asan 7 iste, the they will wvk wile prions beter than thse tric ean be acl mh ay aera te ‘Suppo the semaine theory sry poor! may Be. for exam shat anon fsa fre cs ee ray thu the i eke pode wc have hay any Tele ince to thefts Te anew hat aes theo to beat they Whee ie they sot ght Si ptect of he ime sul bene Une comes ng that ts fee (Theses that are eh ony 80 rect ofthe ime say hee ecmpoma hanes ping) Perihien we sce ha cemer ting ith nema con sisteeys mani uit. throne, mot proper fer shee to pain tint me are ch more mice al ierse hatha. $0 they are but ithe soup ek theory of Rear whi aes {Gly wel fc sul hes t's ee hry ces one thas are iniicly dere in tet privet Entel tu many hve tro pit power they te see toto Tha she stat tht masini ei one sok (eaten hrm where marginal renee oqah marina i 8 mete ‘Sitematet strtmea of toe conlion for 8 satu, The xe srpve ot tanh ery ts nova tung beens ea en the Tecan tht incon it nod ets Re Theres avenge poner: they pret he ape of what happens (nd en ecm hl on tn hands ofa cmt un) Thee the ily pub ‘he fc eer Hn hn er {hae the conn ea rt preset dessaion ie promse iS iuaty an ate taunt pease singe een) Ace hercateme the simpe rat pple Dy mone of hi 3 8 (batman teppei trth, The een of scene poses to cee wp th er Hom lpnorace to knoe and comps Wythe act tat he et ‘Some Apologies “Te Blof the como ot merely tain nee pnration ia is ane mtr ie undestand thi comme nerd we meine Sint the oer ones whch a thonsind rfemers fewer deseo ee impr and orang ape Ths a ort hor rhe geal FES not am say goa, meer ar oe whi snow o er wl be fay achicved.'A modern scans stem maf exons sopity, magne a teens jis pre, consting of ray 10 ‘io port Some pars touch gt et a ays 100 eh pas, (That i each fan dels ste tne or aot Tay tape, fk eta snes dames sean a soon) OE Fa touche he comerunnc- SOQ oer ants Gens shat to teers sal ay rm ters ea an soon) H mo te noha ast t tho TD) iio pce get ut he el “ica ave et abe ened Te shang shape geen ay as ti de the nest hes thn a en produc. The comomit has the interesting tsk Fein Gn Te meee) cath of Thee movements Hamu @ Sh Peope—conpesstcn, mentee of eplanybxkes cael atk sn the heave cman telecom the ge Pass wl and how they ate taped. Andere tere me ie SH Pst (oecgn exons) commonest and the ot Pues re antl a ita 2 alo pout ty or pure “Ti analogy mpfr tn any nape examples Sage the ing gether of ais of emote Me then at she wing topther of arts ae ot of ane et gear that wel he mere snpropate Ix get lens ht tes oe port thea 1 Ghange in thereat ete Tw ces ml aes ther pce Sete thn hs cn wt te nd Su ter Gheouph avai of common anne sacha he cost Sete ng and stot the cup of rue peter even Stith he delves of the aiogy may eon ame See of Te Copley oft mover crane ten evel of eel ne Sate hy the phys sense Our main lowes {ana re people an pope wn ste suc hy the pas Sind paces we ae the pobcns 3 emt We a fo ‘ah ects of xygen cach which es somewhat nel in Stitt was jet emia ho te ge, Some sr ary Timlin: hers wok ry sity fra eral gram al we Stace instead aod msral weal any sie ta that they wre ‘ec of argon An theca aly weld an e's Shem nt sold eee asks Catan ah a Weng ‘ter elements fy Several elements nad tet sen chem fo Drove the inerets We econ have aay fad the sage thd daadonapes af th nly parton My cor cunt of aay iW requires wo Spl pegs tech tat ny inert conic phenomena cant be expand, ran he expe ony seer oe at er ee at sae mp ihe So shew gas a ese ie See Apdgien . Ts 9 rch greater deter thin the thor sci sence, coms has decloped formal and sac a cere cpa of then. The feandanie of oth pct preston a ema elec ae ay fing. Splenda. hs ond taken Heo ever forthe water of Teatond dum Soh the fou she senescent Wal of aun) ete in these words tthe bese iene neu meted tp dion af sbi Westen Suits ‘A mosem economist whoops to inti the espe i segues Siow i = ‘ate eae inl Se eam seme Ceo a Caen ear hima fe ate iu bgp is fotos ate 1 sil ot sys an you wo ie that tis change a amined Hesse Pre seni vewprt isan snc, Rowers The {Sim tl alse nate My ein en emo ws wong The acme of» psa ai in Fare in 176 Fae Sth ot) ae sey ewe than (9 S80 een {flrs and st of am Aca Ag wa sly tS thon seo: x0 Shh ieaertng tht pnt had incomes tw than S1Q004 En omsatsial eden ted visu th spestionThe corresoning ist of We mse foe formal anal smehnds to eoure eacing coc corti ik eit at Iony poms im subsequent haps. Here ft uve a cetery-ld ‘of yt ea Foy ma tom teen he age tem freer fe stn hh re iy Be Saye the falicy withthe sown ot fly senentry arly PRICES AND THE ENTERPRISE ECONOMY ‘These tats mst he aed by Reinson Croc igitie wee sation a sid tie of oii im fact Hy ay sec 9 MPfarm of the gl pro} ate also business entepas iio, there ar ther ngaiatons, such as gore, whose mc raler we al dca tr The enterprise sytem fe deena ints a huge muner of pt sicipant dein makers he United Stats the ne sery sgh 1 rs 2 10" comer, aad 10" hanes entero Three 4 “istmumbe of ge and serves reduced a ae Hw many. inpuc hat aout 12 ta 1 Band een ene nd dos ot nce tobebete and ast the nseactne Le stat witht Prices ax Reporters ‘shh unfaingly detected reer every signet eta of the wy ‘early registred inthe hal cure of fights any. Similars, the prices that me ded and ofr for any comosy eat oe a {nf si remarkably tlie meager on dans a prtation, rer eonsimer enn ket say votes fo the Bod scree be ov she nad he ate sty am le tty a8 ‘ice Unive pul wot, a conse hes many wte for ome vanes the sommes that ne ich deed oe hess mo rb vtec Fe hedey 1 Meteo 9 pbc seie tones reper prterences sig pote itn ees pete ih enon the leg of the uct repre how eat lea to Bay tgs on Alfred Marshall (seo 192evn hve ey ic te nt we prio te omc, ‘alvtosapesc ry pnts asset a popu oe sre ain ech in pond we, tha eyes a Be toons but abn the wg pn wr pl In ee a Sey hetecn tye and Sligo ry of {egret a feo fr sme tl antral: Yeon heey lee go) Mwai Sn yop th a is iret oe tc o ie aly Whend 10 Teme rs mgs a ws set einai othe Seah frit fhe rp sien ae oh ose fork 9 fear: the si se She fe cd Sinha mah eve Ot tse pce ay be hel Sremart ne sv the il st tap oe iSttetestor stn of cle enc or we he trae eye the make sping, watching TV ig Grane eg ft ach, ping ewe aig 8 Ts nat on wt pc dei, at psd el ws sty Ihe tng a dice Bes re mes a Lae A Stemi: dees nese ae flea el esa “sive tn wep yo ts cape at Wine dace ae imme The Panes dnb eae ‘ect nip hinge vn eh ce wily ne ‘ke heawe snsscy Bu ie somenal Seats She RIG nse yc ns a om et {stun pe fo gees Sew ee ae ul wh get peon on era nk: thes peo San IAs a's ei ey Stata ese ued np of 2 sl "Te fy fe dhe ern yy try a aoe tan Bee Ince aeady ged ht dn fs rs ot the Cranes o ine Se pie em ar al be yc Sten La bevie poe svesSerS19-1ay the Heng eed eo ta, i Teck nuh son ose can cn ima cnployment he i tee peta he single pened Gn ie Aaa her force in this century, : Ti, nem have ht thei ten Sante mi a sues 19 wists, cam undergo Ings pre ching: the seo ge of pics of rec eaperes fe more han Dt The pk ergy asurccs snared ater the npn af to ape Coamtee sed the eqn pce of four in 107 bad pot fot ly reper the preset ation of spp alder it ssa frit fare upd ean the expen hg pt he Fotare irae proen pcr,w oa es hese ore she se Torti fees eof coma sy wheat ems fee Itratyapofer bv memo of the Chia Ror Trae th sell hth what a fat ei fete markets pt st he "So the pee sytem pes snnamerble message ea the site of sup amt denn foreach emai see at cach place whe Eeught piled. Macy ims soppy for sks ening © hair ka exces spp of mek the rete eee and wages coamunicie the fas oh comic. Same mops ie sit andthe sw Sine pies comin a9 element of pedi of fet the near future of Saiyan ema hey ef strse Be tan fr "mpl ther ay edit fare scr that des not ten Da arn sal ce moe pital Bet than wm Ed ‘eal of itmson and este Hy ce in, Prices a Incentives Sheeac pans fame miareoteen men and yet well at home. ele testa yoy cd aah 35 ey were adver ere ‘Say Shy chan mmm cern oe ‘pln oe ey whe are an ome soit abd it he a yl ‘nach hen amet» pen et lene ah. {geste to om neuter bocce grew ow rani Complains ‘nope the igs nd mal fie peta he re sei et en ie vey of paps cops at he waking te pe n ie ah Mr tl her rae Pres givin an Disc sis ts fhe ce spt a re wand ss ae inked tho ean ob {au nip cps enecharge higher wage 10 compensate or moving cats apd the eat 9 tors whore ihe i emg at pti pea ‘ater fade oa dese in your nce, Of cure, nothing ha a er Trppened fore shold te wholy Unexpected. The mae shill o chy relearn making ther expecaton the larger the icone wl BE fniead to ate late pce (tat dem ht wl te Fe 038 Trodscs me eicetly on rg se), ‘Concasion Recommended Readings A, Has “The ie of Kamla Sc” Aen Fn Re Problems Stale Tamms s aeip CHAPTER 5 CONSUMER BEHAVIOR We wish o capa the Beinn of nsumarsand oe appro his txplinaion rahe tou the commer ov nc th ele fe Ths enterprie tin insane rm the sak af bo secs From hing st capt a ne he set once enn Series which wl etn sre the Jue the hota, woah four be hare ts Loon he ype amy that comple, Inte of foves convenene a Totton hints epic Teefce,eeononsts have devel moth sil ngs to clr Ing recy th preach, and we ll kth inte nt shor, There are he apeactes to the say sos hen, bore we choose ine tl be wie tack a quests we wh to Aer with ou heey of consumer hoi At ceo ee ime are ciel of ta ype st wl consomer site plan cRANEES i the exons spontaneoat? T's il these changer e sien rad I he inser isan myporantsnace extn shangs natal me Shout sek tan the factors that enlnn changes I somer Ishanor, wtb They bes reson, polite, she testy, tn the pes ot gan am sorts Wilt apes he Sale tadcape vl suas teeing we scons One th thon as agents who induce changes ia the behawor of the economy, at Uftincinasras family se onthe lat centry oe mone aden hat ‘area py 9 vps toss fren which hs eC age ‘hangs Ini sc see he been sow and sea ange ‘One would have more cunidence in this position ii were oxo widely fen hit ha never been thorouphly teed. Inher vesponse to pie and incre changes, consumers sen sea tae and pce way They nearly ae oe a 38 nies nyse ies hey uy ofa thing when ts poe He he Price ofthe Community vie of pot esp the term om wich can esol To pools kl we the atin which they wil exchange Tor each ter opp nd pt fr en Enust Engel sr 1898) wadDrea The oles an ms ase le of ema tory that pope Ut nt uy Tess andy fay netomat he pe ace the arise of smo dant ap aber facts a sett 25 pee me peay tse i ctor se eat hl Them cum shen the pe fe county shang he let due iy tothe poke change fete he sudath The factors we sl ha 1 The ices of ster commits. 2 The naeyinome he tune 3. The cae opeference te buyer. Fash of thee ok fst ite dace hee? hole ws fed fn ie ec the cain of 8 om no ie aly a hs melts aes than oe a Scere move nil be poche at lower pity ie vine ake Site othe ft tht soe stm re sole Ay, my Sat tate oly ane opy of the newpaper wo pie all Sch Insta: itr ntresing ont abo eempaied proche cre fort umny ral hyo eral deve: 1 Ry using tony at the mes yet ot cnn 2 fa eto (ay aaa) wt varying een. 5 ty comings ge amar oy tite ree drab specimen Veo tow pratscame only ones or gua Fr markt avn dnd caves ace rensnaby erin ven ‘every individ deminer scotia, pone as sey {heck ha tl ah ster tpl ae save ee So ca we convince skeptic tat this of dem” rely tive ot comers ll te al erie? Not by 9 fee (40 {Couey sco snmp sely Nut hy aes there pa, fr fhe exes ian peal rule. By stale wf oe at mooi blve tor we tal Be mre. fstape a pecsive 8 aa Srae is flared a paroar markt at prin te be wt ASsived of immoral. pofesioaly peste. and anal eons ‘rhc ail alive Since ra economists old we daite sir teva {Senay sau that essence of exceptions tn Eek {inet tnd them And th of cose ins te sel pooner able exanples. ranging fom the nf who tts own om sane case they a out of seus = mre expense) tn abate ats ‘nvetpatons, displ th rau The ead carve" the pemetical expression of the elt ship herweenguanty purus nd pie a Ew of dosed That demand curves hve a megane ope Tree sem sures fr mmodiy X ar wn a Figure. Fach cue sows the athlp fermen the pe af Nand the «Many of A tha and Crresonting to each dire wf the pe f(a sate or ‘xan income thee aren demand for Shea es Pe Shh‘lasty demande fete Chane im mts dehy the feitie change mpi face Appa A) The ate of eae th Sein aera) preat. the ftir Ihe sates fo he com Jy: Sarre ve dna a onegeos coords feta gallo of ‘eat asin, no on Cas thse fm pup 4 an se om frp the ey of demand for gasoline rm pnp wl ery an htdng the pce of gasline fom pump conan On 0 Conese day an ind porchase wl be Goomtty "Owain eas ‘xan the glint the vo pps the sae. a cosaner wil oly thi atthe Nghe pup by ero fore aid wa). Thee hc sf dead ce Appendin'A “he Coop of Etc) of ihe nda passe np wl Oe o- ow Hee he sbsitnon is cvs bat ow cam we mevre the ovules f abeauionhetnen novia ge! Tere a ey Se sine interme of tnsunere’ savior sad thrtore oer no {independent caplanation of tis Dehason There i ose “eho. Sctrgenan thangs i ao Rte state tes han for theater a sewer ho sttabity ars with ccm (esc i tustte fora he rn ferme, lw for ng Salen in only ae of say places where esos have fecha cle in a et I widely scp tht cl has oad suites ra chi) at a es a hee a irenelzil, simply because these saves were sch pool stats for tier “be chp Ths so of tune emote staat fe encounter often in scone Mertuer the oy sour ve to {Bee the sden ss aso then estimate en Uy recone ad Theol well hace tinea the ast The Esfct of Time {A given hang in pone wil omy I 494 br change inthe quantity commer uy the longer the price change as sine ‘ne reason mp abt sora express fo he fat tha she ‘ine doesn ech day remake li dns mew ve Sita, ths may Be eiey resonabe cd but Hae the fall respi to pice change. ‘Whenever comedy is complementary to another erm, more ull aljsment wil be tye forthe se dara pr A edt sn sctry ruts ehd ete ssn fate fal ecw ot be selene ut al the appiances mah wl ety ‘ed are pushin by the ontumer"aiad it may be yes Bete ll onsmert have howe ete mater heners ow Lager Fang o Bl owe with arger windows ‘We may"vsrte this eft hy 9 snp example. Sappase com sem have the long demand cuve(afe allan to pe, a= 109 iusrated by in Figure 32. The price has hos $4 the quay The price ow falls 34, ad only overt o the coum we shots, ee ale wo ast et now pce i heft goa The ‘quantity demas sce = Yow 30) + F109 40) ~ 62 In the next ser, eather 50 percent of the consumers (aking 75 ‘event imal) sa the mew pt he Guat demands ene a= Jou 29) + Sen 40) ~ orThe soma care for pti 1. when oly omefourh of consners js ote core pie fe al pose pes eam pir Son — a) =70 = B ye yam re ge ow as Pa at forthe sea year is = Juum pa) + Lan an) = 90 fo Shown ay Wis apparent ha se den cares ae mre ls {henge ke pect asm dt sure the perl ole Tepctanss ore pris ll als nen mars Ase came the ana sty Jars see sf fetes tthe an She new am pies atthe mie yer heat ens Many ‘Shumen delay porchoung wil te pice rote eeu Lae froce mmenems ve tated with the irc fom rw nen Ite pl of 1078 BS, pce new mes cars fl Dy Wt fest hal afer te othe eae? Rat ue pace mnements ae obatly mages! on therfore mote ico pect Meat mcr eer tort i he Uni Sates a oe “ewbee™ me for aondoraie gleam sores, whieh ave stall ‘tyersoe nomenon tose ant ye are cemeed ty if {Rough Geta ie eave of rle goods hes eng he most rR. on iortant and mest dure) pie expecta tv gr cle, ad the expetaton of cone lation may have een fant the sor perin? The ant iene to wh the pong ecnoms l ‘Stuy et accosted the te prin epovern By the geson Se ake’ One can conc! demand curve for an au of repr ‘Ssumption for dye iagh commonly the tine anit 8 Sear Teri eens in setae at oll TET aha tnthere wl bea ero demand for purchase by any one consumer mont of {he'tine even tho the oa the god cone ela faraly may tre sr vey ty but buy oe once every ve Je. Prices of Other God: Complements a Subi The peso eae ps at the sd tenant ofthe demand fo ‘ny fd The pc fakes wl pnd pr he ps 3 eine fa complement aa the pie of serine). We rahe foc tow te sensndemand” cure fra yo Tix would Show thes of Xposed a the pity of tate gra Y"ehtedie cio de epi ot thee hs ce Caled the rosea) of demand, ithe comomats mente of ‘Sonn out cng satan He Koay defined 36 he ‘Sine shang te guano Yided By the rate change he tcc of the proe of hing st constant z ifthe conse corto rs oy compan’ tr cei cates mth een andi sei omer) elo nl heap the esc cintcy af demand wl heen (nc. nti) and poise inspec shana Siem ine eos esta of dea I'he comers thm very poor sbsittes the ese last el De Sta the Cert aymery. that ere complemen ‘Tea tse) mil no he ae negate cowlaten = "wheter tomy aw pod peor svat or compl ment) depends in pd pat tpn fw fly th coma specie Ripa or brand of cote haw hph eseclety wih resect 10 ‘er yids acelly ont ons 4S 0.even within a et Swe! Cotce ech sal coe aly wih rerpet to ther evens and beeraper pesmaiy ve sil ler ersastly Shree tonberemegine of expendi shen Beyer sek neesige he lec lay tay ee Neely wn Sm nop te a semen The ence of anatase sameness He foaly mare tne hn Unies Sater" Dupont the Supe {Coat faced the op ve whether Tpit a monet The ‘ellpsne marke Dupuy t that tne, pesaced lt 1 perce Uis"ales of ecm It grommet onvince te cur at the clerant marc dd ot even Beyond the sr of expan, tau ve been ener thon if pot conte he oat that ‘ther wrappings ich ae alumi fl aad plein ere prope pat ofthe mart fr Dapont' share of th age rhe nas ny 2 Feront The se if the sfow-latiy of demand between slip Sn these rest pes important odin he proper seo the mnuiet ‘Based on ite jlemest show the relay. The cr ‘Exided tha competion rom thse site wrapings presented Dust from excesing monopoly pee "R demand ere oc. res he ay of hai eran the vel feo pie spite oy He peso ‘owe sabsutes or compements ate eid const. an ths dem uve merely asserts ha srs quaties awl he hough a Strut prcs of he pre of other commis ae wrchangs_ In Tac the pics of che stbartuer or complement of ¥ wil inenahy ‘ange (est the shor an i the pee of ¥shangse appreciably ny lage change inthe pice of fe oor example, ml cane eo Smet o buy moe oft il bamer (complemen a les mre atrl ga cobra hence et pee Bat macy {ospurate tse inst efoto hangs the pcs of ete tnd emplments ply bene they tr nt ab change the ae ty won he pie of feel hangs ‘Te pie of sas nd onpemete ve ssc hy facts inne offs poe, ‘ct a changes fechtogy o conse prc This noecity for holding consant the price okey rad out import eng to sewte liao, Vet wt see tat {he demand fact fr ven sacks 8 here the subscript wes wl al dente ya Ith pi ‘noon tock.) vse dalla one less pr il he phos irvonstant fp smslancly thes one doa, the pre of wo oe al aly ony poi fata a ly it future an hichenser with wood i ane sing eh Aberthangin stenting spring eat ks norman ‘The ren ill obsere hat me hive announce eps ele forth fete of pres of relate esi othe ue hat 9a the pce of a cant fede he quay demanded. The set we ‘tn Come torah a ale 0 59 ta hve etiologies coms serving ch the me purpose il have postive Stossel an cose ehoolgieal coments emmedies at ust eu join orate proportion) wl he negative ‘mtelncise Ment pe of comedies do ot fl fee case Suen diet investigation sccy even to detrei Nig of there “The hid drain of consumer prshases tno, The quan of 2 comma hats prehasd st aioe income pes bg const) ‘oay he dawn agunt Income: te ofen calle an Engl curve Tne ge curves ae pvon in Pgs one illustrating he sation ‘nich prceee thictme Galle “ormsl™ pu the seid Aeatigtesa nhprche l iei ald gusty of the eet. dean agai scone Tot expendtnes fener prices pa by consamer pray oe wh cere Paces [esau ter uate othe crm ate purchase st phe nec fersice an sf). Tetons, the anomie say of The phys {quiy of normal comma wl sly be sme han the ome ‘Sets al expendi: om the comme pli an emote valve ofthe majo noaesininy services on rn ‘Stimate, and teal pos ard tones ave ten viewed cnceling (hat he seer pigs he yer ose) the ppaain a we Ese WF this were tae she howehods ws oe al anc Cold ve ‘iret spending ptr Tere ste so abst of pele, asin ‘rergone except ta clei am wha hurts ae dei as ‘coupons eipenic TR century a the Bs iporsnt siden of fail Dees. East ge. ropeed te fw the tera fami ra aos) nee the Jimaler the fraction spent pom fo "The shy mat dey Idgets of elm werkngmen's fais for cnt hs hd the ed fortune to he my te, esr Path ch ess free famuton and rich veri pe atone The carer dayne Fimtiares on ty catpey of connmion, a © focton ef tay Ice at wen eile Engl carves sh we tl, athogh Be mete te oneappeal sun foe wely ened Sena par ee oe 8 RR ional income wall ome for other tings. We Bo ave {rca Suh empl e.mail sie wil vevel some hss owe bay for domestic seats. ran es, me ir expenuures on the docaton of chikon, and so om ad eae Steir below ny for rn posits on purchase fad Berl) fu nospapes gor, ae s0 th “The Nate and Stability of Tastes A the tastes of consumers wore aie an capricious, we would nthe fhe wo eaplin mc of tha chewed Betton Reese Tg and ftegoem ane hangs would overs the effects of pes ade Trae he main fason fr beri hs came ass ae ea ip sae that thee aves flatonips betweenconsmer ‘ihe argument can he baened Let ue comer the ferences hecmann a fide ithe parchase of a coms 38 Thotrceen even pane tal he yo cosets have ea! incon nc wont money poe for moryses can be an that he tue pe of 2 eye neve ies fr the two i tir age dlr Sattnity, The cou of ang a cysts of probably and Scvony ef ap aden dpa f reowey ae higher fra let ferson, tnd ence the fll owe othe sete seraces hn with age [Convisly the sabe of Ms wl he peste or tbe yung pet) ‘ante Gxt of eening wich computer Is bs fora nen Prose fy ered by anes eo ‘nec thee rae hat the lve Seences we verve in the consumo of diferent pele evn sling fo iferences mcs Sul omey ese monn 2 poof dierent ste. hey tay dato arnt fall int and ines Thi apgrech e ‘aly angel swe eve thatthe deste of pep re uma fhse Shuster sha wn, heathy press ad the ike On A Falaes this vows» perso die nat am atari transportation, sey Soc sntingan uine Gre. oem rr eps nth "Tin approach ay fe ated hy the nerd foes weno that Jens ve soialy een tka dels od est prone tes “a han nonews, We ep ths en ot by ernest es (hich sm cplaatnn stil, hat hy the Tc ha for Tg ages the fropery of evs hs fie een sie i nothing harder occa Eoin shan frm Hence tey che tat wer lor thm sls Fes isch, The advantage thi explanation tht Ht tesa predict whore pope rights ae epee, ssenve peas ewe wil invest inerening sates ofthe we a “This apronch isso cose ih he sew a Sts or pee ences sre torpetineysected aues entry "en thy rote im a era conta cimpeiie testing, fat aston of sand ‘decent that we al find many persons ho disk ih. Novae we ly tod many vegetarian na wel sed ring {nina Tastes so eapenve thee are ly a Hl tose, Te Ehren pacts iam the varaby of ates angie eset Eitorepesanmen Inne sone the am of evieation Gig the row fiom) 0 widen the tleranecs the enone Market Demand Functions “The demand and icine crtes so far dss pian tn inv seit We sil icy inate Iw gps fro nda to Fhaetslemanad fons, ba poset Cape the detton othe Itantt andthe tha determing the wo peoples aes ‘vies rc the sane market, Marker Demand Curves Since all ivan a matte buy atthe sane pice oF at fhe {ifsc we cam cost mat depand cure si by dog Ionotlly he dma cores of ideal A ple example fier in Figure -4. tah ofthe insula tad cwvee Enero bs Bey) hss boon dawn to Spay highly comin teapmabense a pies 9 sow hal the are fio Takes 0 "outer form “Tony dared of Raed AnH Tapi tary 1B fe ame sto that the ast of the marke demand came is cual rth wight erg ft sats the dual une, {emg hms the relate nantes pcos tyes ver Market tncome Cures sf 0 amo des Sera pssbe mart Na sum oP af ey SKonn and fy 2 ets Cui as Lara an eevee 1 imate. hen it Spy ap ha as income ners ere rng pnsrerage if the indies income cities (he weights Being he ‘Ris expenduues the common question)” Note to Chapter & Permanent and Tramitory Income 2 sae diay i oncouneredwhen we coma he ine pio oe ‘ich iome shoul he weskoned Suppose n fay har the feng ‘gnc mal scones $40,008, $1000, $40, S10), ad 90 focth"Shll ie teat he income oF Attig ete, SHU en toda or as weeping S350 i obtuse oy et foome 3 erage 425000 saving SIR00 ih spetous sents ah ‘dcving 31300 in unprvpeoa yeas Av the ly a wma ‘deca wou be fora and ven capes 0 aerate Between Aenean and eke he, tosis chien collage eye am 80 coal mine the net Fooly anomes do et tate Ta del) onary (exo peape etmeen sence of 9 etre they do tinder etton fst mite. Even im eid 3 at fra ens the ices of ae of fie shit aba sbi the “Staton cetien of scesste annul ign re fom 068 {amis wih abe inane, sacha farmers) 10 D9 (lr {mie hoe shel ener rls lel empover ss any comet wi mie ae Speech x= (pennant nce) + 100. ‘Te dain of 28 fais by thir permanent income shown i Tale We couse ramon sponent fone for ese aes ty Tipping ey itl nang. 82000 Tor each eas ot ‘Shirting $2000 foreach kad erating te osm hen he ote to Cher Permanent and Tram Income 37 ‘oi changes fose2® Te purchaes of are plated agaist carent fncane te 6 and se ne om whic al pts a eh far bs pesmaent income cl pase, Ties ht Te Hope oft newbs ited Yo the obersion is ee spe ta Ie i rela The average peapent income ofthis groupe SH, am its average crrentinome 30990 he diference fe dt the rantConnumer Behavior ad the very fast that th Tas 0 large postive transitory component pute it ina high eure Income elas, For this reason to changes in permanent in i the fist important student of family budgets Brat Engel, proposed the law ‘stole the fraction tent upon foot Adedueed trom budets of Belgian working it in a low eurent income elas of « group of fat entry i ho ha th tion of bath rich vs poor fame at it ad a nt 2s serving primary “9 once itis tet additional income wil gv tot fo athe ich empire rae unity for domestic se cxpenltres an he elon unity for ars fuel, newspapers The qwntity of eommnaity demanded at given prices and ine Iikes and sie of elute and funily composition; eultaral track Tastes co tions (Frenchinen dine wine; Americans duel martinis); sli (eros infnce snes far yond dietary rues); and even ees tion, A met of eseribing tastes quantitatively wil be pose i the next chaplet For a vaet array of problems inlading most of thase we shall ston fixed. Te otality of fasten ean depend pon sich slowly ‘hanging things ae dewographie enearterinties snd eltral tea tion: Moreover, casts should not he nlaened prea Hy most fet stdin, Ts hand to sce hoe Ane my important cect gh the elects on price Tse efenses of the asaniption of gntant tastes are not xtolyinplawible. and they are buteeseed by a wholy difercat : tion Tine of singiment. pi rani analyis that asses tastes tobe ix and hep isconfirmed by eaperince Hen the neglst of tates has be ust fia Hence every suree=fl economic analyse of conurer behav ior that meleete changes in tastes i uport forthe neleet™ Tet us hr more speite: the economint says thet if one callet= + oman tee of sp i gt ass Uthis statement to he wrong, Seam changes, that in Well over 9 ine It any stent should tence, Tiwte oti boundary over which Ul will d sill he please no eanonist sare not sop, and tang’ stulics of tastes have been toe, In sty of the long tern enum for hosing, obe nat tally investigates changes in fay sine, Ta etd of tho teen St employment in Ue tonal profesrons, one considers the age und sex structure ofthe popalation at t= urbanization. Pertinent npments of tater an" inteodcad whenever nl wherever he40 Consumer Behavior fre helpful, and it is oly their enormous variety that kes thet ‘of the general theory ‘Two propositions on tastes ane deeply imbedded jin economic et The frst proposition i that human wants ate insatigle-—that there is no el ineome so larg tht family would not like woe (The assertion dove not tell ts wheter the liking for more incone diminishes as the fanily somes rieher.) Although this proposton feng long before the day af statistical asi, it has slag ‘en esentilly an empirical propsition-—the Hct navecian seemed everoiling to auguent his wealth The exceptions which ar allege (it ie not evident that-any exist) have tally, heen ateuted to "prinutive™ peopl The instihlity of want more thet pilacophical obnevae ion on human nature—it isan intagea part of economic anal¥ie There is no place in economies where it ts susie that if a nd Vidal eye me of = ity at given pre, he will not 08 everae ny more ifthe pices reed. Nora there many eat tists who ‘would explain the fulure of a odes incon per ead to grow om the ground that all wants were satis Tho second preposition ie tat tetes are etresly varia fone man's rat is another man’s poison. And thie proposition le ise to quantitative measurement, When the purhasge of fasies with equal incomes are compared at a given time (so prieer are alo hel fairly constant beatae all faniles buy at about the same Prices), most of the original differences in putelces among failee ill remain, Thus, even sith so broad eategory all fod, the forfivient of varttion of fami’y expends ts tore than aD pet cent and aftr eliminating income Hierences it i ll 2 por eee. Tn other words mong fails which spend a average of $1,800 fon food ina year, roughiy onesinth spa les than 81200 ant ‘oncsinth noe han $2,000" Tn the eae of more speifie tomo Hs, ch a wite bread and pean butter and tenn halle, the Aiversity of family testes eromes almost stronomie ‘The diversity of tate rane some intreting problems in ee0- nomic organization. Wencver it neeonomie fexpensive?) 0 sy ly goo oF sevies on a small sale opera, untstal automobile a Mayket Demand Fusions Jules bok in Sansket om bowling the invidhsl wl be una aly hiv wants anos they ate shared by a sulfient numberof ther people, Pope's aces in hosing ifr tore than thy do in ‘utomobiles, and nee production techniques have had much es: in the construction intry. But ae a society borane MARKET DEMAND FUNCTIONS n srves 49 far diseused pestain ¢0 aD The dead ad ingame et ida! household. We shall briefly indeate bow to pats fro Tnalvalual to market dewsand funetions, but postpone to Chapter We dention of the market simply by aking horigontally the demand eurves ofall ni “duns, simple example i gov in igi 3-3, Fach ofthe indi Maan curves (Dy Dar Dar Dy Dy) has bet drawn to Market Demand € Sine ll indwidual Figure 3-5THE THEORY OF UTILITY uty meory male way int econsmcs ne than 2 entry ag shen twat il sematnabe psychopealtictine te tt tors Boavorcould te espaned hy Is dees cove plese ad {o'neoid pum Iwas snarl extension ay tha he Pete OF uty) dre rom rma waes wth the quantity the co ety Yr creates Tse apy than the gear ofthe cami {tof dinsting marginal tity) The mating of why pode Sha ee theory of meta conser teh completing {he papa eat which eae the Ra for thoy eat ‘or srt te the wt thoey was taken very itera san fe tached to the esa nf pten sean of pws, wert Sts achieve i the Farts mnarap of Frac. enor ied Mathematica! Pysier (IFA) Edgeworth nko wa one it Englands trent econ eben dseaed such peclen ae wher 4 mah ‘ain at mach uty from given ince at't ma, owl “ston phy e eh the cont anes The inten ei of tht peopel hey tke a seman the lover enantio of the ke tt come eralyistpartvaily by. Ved Past), ed omomiae 9 aan Baking ha its aetace Te orp mensrement of wy the Sparse af ais daved hy dient ppt, Te we ot incre Senses cempamses to ppt ube fly qo re aly. handed in pont win ne What 828 fae #25 the ‘eacep of nin wemay em aera conser “The Rational Consumer Phe Characterisation of Tastes eee aan ttyl Bs rte ty Ant pve fort oe of ead eh ts 3 yy agin yo 2h ap of elle ‘papi ty of 1 oo read 2 shange no iret thn sang stance i ines ar hn inte Ha the uly nf gen Art fe comment“ Consumer Bekavior RECOMMENDED READINGS Friedman, M, A Thcory af the Comrumption Penton, New York [atin Bon of Poole Rewath, HST Pris, Bly and Mt Mother, The dale of Foy Roget, Sdn, Hy The Phony aad Meuremont of Demand, Chiego: Un verily of Ching Pre, 18, Ch 26 ‘tong, Te, The Measurement of Conners Bzpoultures ed Behavior nie UntedKinglom, 10-1088, Conese, Engl "The Un eesity Pry 165, Ch 20-23. Working, Ey "What Do Statistika ‘Denand Corvs! Show?” Quateiy Yourmal of Reomumiey, AL (127), 212, Rept Rendonge PROBLEMS 1, Make nomesolakedles ofthe demands of to conumers, wie functions we = = 97 “Then ad the densa curves Horiaontlly and eompsee the elsif “2 Tet sof acs nde A ny aoe tne shaw that reer {enter employ nee servant than poor fie ad the inc ae tity rated fram deo rosea sa abst 42 Bat over Us fat Ia sty the income of avenge Ame Fay He hie tho anor of servant he atu fallen Haw ew thes ele Te enc 3h intone of the income ounves onderying, Fine 30 are 1a Br 557 + 0, byw ore + Ors, eho ¥ einer in hans of dlr, and the enantio Hl over Ue rae fn $2 to 83 (Umma, Vv the pea Bh Ms Mia Fire 0 “2 What i the inom ety of en of the inne cures in Pro 38am inns of $4 thane? 5. Germ the demand fone whisk portaye «lage sponse of Problems 4 Tagen price chives (tiv gin in fotnole 7, page 28), dw the road ete for thi je when pest he two pectin as Wer @) me= M0; ny =H O) pee a0; = 8 man; ham, 6. Calilte the olmrved expenitre ple for the 25 fin in “Tale 1 i the tamtery campo fr tie oe, Ta ad $100 coach fay» permanent eae for eal enetve Id ‘3m ein ten, tract $19 Tor rel rest ei served income lity Inpro slo hn Het a the sure Kite in Figure? 7 Bopp ll consumers ave Meni deninde fr io aay, at ve wae dancer frm the nal ity, Wat ai ps the market deme eure revkoned atthe ental ety Wf trey toate per anit nf th pi ree? What wil ayn to the tty nk ‘fem ith domand fast nese?rule out he ssf rule pasties) hy sme atic ha compel itor 1 QUE and HIF) to combination ACT an 107) bat he Ashlee egress ner prtereneehebeen combinations a I he niways constvet combats tht seem equal tothe idl. I, forename he prefers OY 9X and uty, semper tween 11 and 1 ach tat with 9X we ca ad a Rc ume te 1X am WY, We hen Say tha he nie The combats of Table 4.2 ae dled ile cies they are mi tc) eRe scaly pois ot Figure pe a) I pe a Ratna Caner © commer’ pfeenes cn always he chavo by sh liven Tn pan 1h) she india (1) segues sxe nits of Y Cafe dend wih foe ata cl fat a wea me8 The Theory of Wlity lagose combination 5 in preferenen ta enmnbinaton 16, even though bo neh peer to consi the latter eoubinston, We imust rule fut the vals (or resale possibilities) by some artifice whieh com Pcl hit to ons De ernie ‘The second ents, which ie of an entively dient nature, js that he may be undecided av between some combinations, He snag pele combination 12 (HIN ad UIY) to eambination 11 (11 ‘and TOY), bat be le to exptee clear preference bsteec cot Pinations 12 and @ (Uke later haw HON’ ad 12Y). Tn Tay Hf the rovnoaities are divisible we can always construct combinations Uae soem ensvalen ta the indus If, for example, he prefers ox and Yt 10X and 10Y, ond and OY to OX and 117, ‘wo ea fn valve of ¥ somewhere heteeon TT andl MF wich that wth OX ite oivalent to TOX and TOY. We then say hate I nuifereu beteon the combinations ‘And thie lols tow tind difelty> what i€ bis rankings ‘ange from one dy uo the nest? Thi eifeulty willbe postponed ‘well eae that hi preferences are stable “The continations of "Table 4-1 ste deplete litle eee in igure 1, Poor! A. To Pancle B and C wwe have dra dierent ines thraygh the cies, to display to posible rankings that two Aieront individuals might make, The tines (alle idiference furves) ely one rile: All ornbinations an lie are equivalent to the eaneimer: And our fundamental argument is that the on- stn’ preferences eat aly be characterized by seh Hair Tn Panel, the individual (1) requives several unite of Y to ‘ompennte forthe Tose of anit of X, aa bntaeen eombinabions which are eaten In Panel) the individual (C) requites only 1 fraction nf sit of Y to compenate for the lose of @ unit of 5X, as betern combinations which are equivalent, Hence we may fay that I ses a higher preference (ati) on X relative ta Y, tam Cows, “Only extensive experiments will onvines the reader that any sot — ‘The Rational Consumer “0 Sore * w of tastes ean bo eharwetariaed hy sul inference earves. Tn the four panes of Figure 42 we show [A.A porton who considers utterly ucla sy Yi food snd 2X eee to marathon donee, B.A perv stho considers X's poitve ausunes: say ¥ ie food and Xie garbage ‘©. A person who considers X and ¥ absolutely equivalent: say X ane! ¥ are objects ifering only in eolo, and thie fe downed invtovant, 1D. A person wh considers lone thn 4 unite af X desirable, would ever be eaght dead with 4 to 6 unite (a diel feat, and would Find tore Ut Om msn,example, incense the marginal wi of «ten aman of a me acd ie of yoo i kl yom erable ha the consimes buys ome of Sach comune inderence eres us he Swen tothe eu It wil fe shown that wth hat or omeave Snaicence rarest ee of the comics el peer Fe frvchosed Th pow, ko whch we rum subse rgues 3 Atlin of he cnr om The consumers hn med Hy The Budget Line Andifernce carves day substi ais tomar ohne inl sere We eed he abe eds as he ens which tse ride and serces ca he aoe. ths fe doe Means of 3 vce halgt ine Suppose me he ast fy ped dane ite pie) the arent of ts prshisl es ec) {he arnt of teed mes price Ton sofort teen the bt). the ameunt of ay purchased mest pic (1) ‘The som mst be the ota amount of nso the conse poses, for ‘our bro stants compte, he cane te ek 0 se osm Ts we may write the Bade esti 3 as enn bo haBe = income = R (Feo many of thes may he 0 for any nl, ‘ie lnunal ear ast cosine are suticen 9 ths rein "Th fit that he balers say at trast te Mntry™ tha there thelr oes, Pays mst he ete own rtsved The son Tht the equa of prchane an nce Nias mater of din we onary ol appropiate comm ice to eep the enn bane Tce mt fet Be mht beheld ech a hen one of fe cn represent theta hahaa (Ihe pe of eh always 1) eur tise pened were 2 ‘eek twa lenin pe hnger ad the Ey bo Ton, oniy the Gost t's wesks seer wuld eater 8 weekly hod ‘uation “The hag! hae in wocommoiy world wel Become he poses of comnsiss atthe ase the a he Rational Coma s Veet sya 32, Sand 5 spel this Bers save sist : ae ye, since we may cancel ot the comm simersn f dlasTis Rdg tine canst he degen ote ome ssc that we hie employed ter inference carves for tle gt how ry ie oY my Re {Soe in parce witha gem aunt of YT net bo pie) ie ima ses in bah Pest are stm mn Ugute ed The cope be bet Ine wih expect the Naas P/M san he een higher the eatin pie Nhe sept the Nagel Te ciel ess orbit of and the ue ok pots i ihe stot pte he tual hoe hy she a sec a he Vie fine The spel ts msn assumption we hl ak he Po he he Bagi for eho ie conse tly bys at comsan pices he te ai tnt in the mares in ahic e dea teen prices a aly price dr ary wih yuan sine cna 3 che ties fw levy it ae per A fo heft HM) a 809 ih heen Te ths ese (4b fet tthe near saw) Tea The Theory of Utility 2). (Noboe that AN ie mgative) Bt AX MU, + AY MU, = 0, ay _ MU, ~ ax 7 0, This Inst exprosion ix the slope of an indiference curve, and is called the marginal ante of subitation of ¥ for X ti illstrated in Figure 43. As we continue to doreace X by eal increments, Mu of te remaining quantity gots larger, aml the MU, of he Se Figure 4-3 Increasing ally of Y gets smaller: the slope osanessumeri- tally peter an we move to Uw lest long the nlifernce euve ‘Rode wt conesiy eam "This prot rule form sr tse in this fon, bu i ba one uvatisanry areck Dininiing marginal tity does no ply ovesity Lie lity of emsmody depend also upon the guns tie pomewsl of elec I vet Ut dere Sty, for coanple Ire the marginal wily of «von Sinounto and spol on agent "The evo ne of roo! W based yon olmervabe bobavio. IF ty conn ays cone o eh sonny he iiferene curves clip en oman ate On pone B The Rational Consumer 53 rise convex to the ergin. (TL il be shoven that with linear for eoneave indifference eurves, only ano of Ue enrmnaitie would generally be purshasoi.) We sball return to this peoot later ‘The Budget Line Indilference curves cispay subjoetive atti tow objective 00d and rervies. We need to he able to display ale the trae fon which theee goods and servees ean be sequined sd thi is doe ‘by meane of a Foal budget Tie, Supine we a the amount of preset it pie (.)5 the amount of, purchased, tis ie pee (p.) {he amount of zy pteiaced, ine it pete: fn) (and so forth to de eb of the st) the ammount of pire, thins ts pie (7) ‘Tho aun must be the total amount of income the consumer pos sesso, for If out Tit of coum is eomyiete Uhe income se he bel in come form. Thus we my write the bigot ertion sa pcb tim bos bays = Income = B. Ot course many ofthe 2 mye zo for any in vidual Teo additional remarks on bivlget constraints ate eisenl. a this pont. The frst i that the budget equation says that trans tions are voluntary that there ie no thet or eaereon. ae scone Js that the equality of purchases and income in rally « matter Ot definition: we can always find appropriate “omnia” ep the equation in balaner. If on tie period were a werk (it 5s tually convenient to make it innger), tnd the fanily bought house, the purchase ofthe house would be ost hy the increase Jn debt of he foi? "The bulge. nein beo-eomdity work would some APLA YP, = R IE the prices of commodities and the income f the indivi nee fue, sy at 82, 81, and $30 espetively this Weer eX + S17 = $90 Xb v= aM, sity i Gone ony tbs item fi‘ne cam of cms exp he prtsipaton i 2 Chit fan by inveing ne ie of reece deste of peuple to pret cscs agin afte ack wl power fr s dese Yo he table townndfankee® Ime stopped the analysis with th eeplaton. We ‘rt array ina tout ates, we wok Be sah ct Sinays be found fr watever verse an od, Th oder to presto th peictve power of the att dey, we rns contin or chins fur ana fll, The Tepe cst puting money in Chitosan Ye net one ea [lling the some mae) tna stings money mantel ncn. Etre Ties tsi scouts fe the soe af jog protein gat 3 Iwi paw es a leer of oe toe Rove fate re ‘ving ug ho savings secant tlt les avings to Chast ts fmt in fact ceed ‘Acoma ear fos ly et tase that» mis salle ha rcs an blades ad that (ic arensnable. possesion {Navn the conser wes ath werk ber oe ae em bles it he {incr shovig by 09, Wil I conser cite how the tw sens te Frise pen the tl cn? The anger so tthe ra ass Indy sos po wes he nterent on he ans, 2 iC seis ate per mm lp, the pee ofthe arr, dhe onto having poems theirs Set ps the ce feo tee he coir wil he eet (at = 08) whether las ate $1 and ars 100 fades $02 svn fee (the momber if lade ah the tustin moce cpt) et es hal ake a move ditt trample. A howl cots x rome fo HN 9 moh as emma pacing fo S000 ese then cot of home omen ww e he ut of 1. ares per month on the SHDGON, wether pai for in cash ow 2. Tames per muah on the howe 3. Mme sng In nce taxes beemee interest payments ad 5. Miauhiy desea he howe (6 The mony cons (gets, fst, Hey) of sling the Boe if he taouy mune nthe hte 7. Mn’ the plensre of independent lence ts Kn. Thee cons wil ay with he fy’ sano for exam, tem 3 vane wi he fn’ onal incon Masini Ui, We oer As pat ona se shat pies pono consumes thane the mining ot 2 tre fis oso crew of fires crc det cs before cary tea “Dn or smn thatthe gone re desabe, iifeence caves have mae spss the confontns on gh indice be aay tre these 2 wet mile ce a 0 tmovme uy oto ser he alana combusts el, the ciation that onthe Nes sabi neem cue In Figs #6 the combina chon is Ds and 7 Co ‘mpl sie aco rafal ut represent lower ee ty: com ita is upeiro'@fut sr more ha tesla cree The pe fan reac eve Na hen ea he arial nica soda oY for 8 Sines pene anesthe at ‘Mites curve tates the pte ne aa he tierce ene five the same supe so he comin of maxim ty may he ‘What con the conmit espond oa psn cay apy we inst that docs not ane iy Hm he eat pre the pra thee he des no munis mii afer all be nea ‘hing crankset Hweould ako be posse ee sal see it tcl inpatos f the asp, Bt ice he. Ene began to he develope only sun a ais ae he ty B38 prope 1871, what el ome to ep Tie main oro wat iteapestcn, Everyone has inal files Ive the exact denosinatinn than sting fe conta the cnt a 4 rove expenive speci Ip tthe pest ofce Yet by al Le So bows eared To he pols me sect cee. Dempsi evaeeso Phe Theory of Uity ing on 8 sper Aight (ns ting f 0 ine) "wiles yng san rece fe oe $100 th sting Sor var hs es or ee esse the iain uf neh ly saow aed sees Sih be tan i a our, coilney does nt ipl eget of tee "in cots eol Wih camateey teepe bok rath Saber fer to rea the Tisten to a boiler ee Figure 4-5 factory eater han to Mose. This only tat th , Wo oly to ay that the analysis ‘of man's belavior is not an ethieul study. aoa Gomer Coat Cabattions. sna of vaio combinations gras «aro incorporates! in the budget equation, and our second oa in o rein behavior simply te rome the se te recto orc. "his contin of profer aimee hao is a be gt Ile sap HL oni few eases to Ua nota aithnetic he simple how § aby Sta at cas, “MY wh ww Se SpE ET EL RE Phe Retionat Consumer or Av primitive example comoaity 3° sold for $2 a shop A for $240. al shop B. lyn the busgrt ction should ew BRL 21Ny, oo fa a this Hoan be eonrethel. TEX, is identical With Xa, in all ropes Cinealing the serviews of the to shop) will op out of the ens urhnes, ax we sal how later ‘tix next level of sophistication, oF rather navel the consumer con uy” fost of money for Chitinase present hy (1) putting taoney inthe bank cach mond, and weciving interest, or (2) Jone ing one of the Christnay fund plans whereby Ibe eompeled to Centra, and ot allowed to make early withdrawals, an rerives fo interest, ‘The eos of tho fun br (ey) $100 Dy the steal ined 308 (i he inevet averages 4 per eent on an average lslanes {1 880) by the fst plan, Hle Will obviously ehoow Hie forme, Ye tune people coos the later ‘One ens of ease expan the pariipation in a Christmas fond hy iwoducing nother itn of eferenees a desire of people to protect themselves against Sure lace of will pow (ora sire to be charitable toward bankers). f-we stopp the analysis with {lis explanation, we woul brn uility into a tautology: reason, ‘we mould he saying, ean always be found for whatever we ber ‘aman (ote. Th onder to preserve the preditive power of the uty theory, we rust conto ont Christmas fund aalysie as follows The fore- fone eos af ping money Ja a Chrstas fond y the terest one Gould eam by putting dhe same money in a savings xecount, TT Snterst rates on savings aeconnts rise, the eoet of busing protestion resinst Toss of will poster ree a Hae of HC ought he Donght: ‘tively more savings will go nto auvings eeu, relatively Tee Savings into Chiat and The avother example of cost analyas, Yet ue ume tht = ‘monopolist sels bth rors aad aes a Uae (wt i reason ble), posuesing a razor the onsniner wot eel ye eilier one Taie’ot no blades (he gives wp saving Dy aor Will te on ther sare how the two items are pric, given thee total cost? ‘The answer i no. IC the roo lasts indefoiely, it cast per week isthe interest on the iavestinent,everest al none a al hat td ot lexi ol ne bal Soy expan wy Income and Saito Ets. he ge ofthe Glen ese an of these Steven in semen, he ae af we Bo Bak “esi bat poe hen the pie 2 coma Ti there hye bem om the hae ve (1) ON 6 05¥~ st a $3 bg 2 an ain Hue 1H oy 05% = 9 an new combination (2) por rat by ty wollte Ri ap ep Dy eee0 The Theory of Ueikty ‘The main reas con was introspection. Rveryone ts irrational Foss: a common one isto refuse to put extis posta on a letter 5 one dows not have the exaet denmtination, Uius saving one oF two cunts, at the ont of mate expensive special. rip to the Post oes! Yet by ai Taege or ction ave pare to the goals we seek to achieve. Introspective evidenee will never convinee seeps, anil perhaps the only remarkable thine about fakeorpection ‘on uty maximising is that virtually every economist found 3 omvineing oven long 2 pes ‘We ean now proc to the derivation of consumer eeaetions to Prive an ine eines. Fetus gin with ince Variations in Faeome ‘The nigel line, whieh esp the com: Figure tt The Rationat Consumer 6 bination of goods which (at given priete) the eonsuiner ean afore XP, 4 YP, = B= Income, ‘he income vines, the budget fine shifts to the right, but without ‘change of slope berssc price ave being bed constant, A whole fang of bulge tc shown i Figure 47, with income beled? ach budget fine is tangent to an inference ewve, and this isthe point of masini satefaction forthe eonsunnee These points fe jai by the dashed curve, 7-1 7 is positively sloping, move Seach eommodity is purchased ae ionve rnc, Hf has a negative lope, se in Figure 4-8, less of one commasity will be Bought os inthe rises tata such commodities are often ealledinfrior)ewes Mannie mest pneating man toe re ped wit Tab newer cote Pg re he esence of he aproach bok a bse Beast an rom it to'deice etn pres tec Tae ery formally independent ‘Say, tH fe inonclable atthe matting would have Pen thereat mab gas the wily then. Shree mea verve conser a many eyiit— cach wi increas pes and quanti, At re time He at Oy ce line Tigard 41 The ina preter hs ston Yan ser fm fel ths gt ne he wou at hve swe pepe {2 pie often wei tr dowte the-cobiaion sf anced Ne unui ter diferent slate pice 1 En the hat ive (8) that ted the mane tess entiation Gy. cennion csc infer Qtr mead have Beek hase he theoo he Theory of Utity fate? Suppose the consumer fs been on the budget tine, oy F05¥ = 50, (where P= 106 aml P= 60), buying 200 and 6a This ‘combination is bee Q. in Figute 411.1 the pri of 3 fll to 1 the Iu ine boconn 000X + 05Y = 50, anew eon bination (Q.) is potest. When the price of X fell yt fur cents the consumer obviously Tecate better off he eould continue to aay 200% anil 6OY, snd Figure 4-11 cacoanrtiemessien ‘The Rational Consumer 6 sll have $8 (= 200 0.04) left Suppone in fac, that smite cunly withthe fall in P, an $8 ince tae were levied upon him. Thon the neve pce Hn” (ith Pr O06) wo stil to the ef and go through Q., beater X= 200 and Y= 6D is « point on {he price tine, 000K + OY = 42, With such a tax, the conser would have moved to combination Q,, beesise thie would be the ein whore utility was masiinned. Ant elently Q, les to the right af Q: the eonvenily of inlifernes eurven puarantecs that flatter pie line willbe tangent at larger quantity of X. Or, in comin fense tras, sien X is relatively chee, with a fixed “re” inenne the consumer will buy relatively more oF it than before the price fall" Nove let the vacating tix cllesior refund the $8, The price line mover ta the right, and the individual rus to Q.,"The move fram Q, to Q, i therefore eae the frome effect, and the move fom eta (the subattution eflec, "The eubstitution eet ie alway negative: « fll in pre alway Tead toa Sneree in quantity, Tut the income eft enn gether way. Tn the normal ease it reinforces the stitution feet the restoration of the increment of re ineome due to the price fall Tends to an atonal ineease inthe eonsamyption af X, Dut with Interior goo (sich ax owe bread, tenetmnts and elt polo Ponies) the income effect is nogative, Tees rven dominate the side tution effect, and then wo havo Ue Gillen paralox-—whieh i i strated in Pigue 412 [an elaboration of Figure 4-10). A Uiiity-based Supply Curve, Whenever an hividual possesses 1 lock or flow of anything (potatos, labor serves) be my be feane a seller a well ay a buyer of Hk Te it ety to enlarge the uit analy to deal with thi situation "Sur apa, Qo ally Ker oder cee than Qe inl ee My aia’ aly er 0h GB Seles Goatinecligherovkvioias2™” * Mubemeteny fins the sation thiopeiy a yrteo incre ‘nots for Bconomte an: Maclay, 158), fia.” "™™“ Hnne ratory oF ner ‘ys age amenities (D) ‘ony ineenese ecsay 0 mil sch peeictons ofthe ily they The hemo he ana inden eho nec fll ‘gobs eleetly a posse pertain fa vast are of human Shlcr eten if doc mt prone complete hey of any pat hat Welfare Analyses Snpae 2 whily ahem creator were to observe wo events Fist one tat doplyed aco teqnesing cana conta he wc he ‘er man responded by handing ver $30. Next, ome mga icp & ‘sues an fester man respond by handig ver 830 Stel the Sham ald ule wo tingush Betwecm the wo mains {oii he fmer donor fe the Deter Tor i, wou Fea ald {inter ha the ate donor et ewe "Titec sherbet im frm of atc ce wells ely ne mist ve brie Hetwecn ster of weve and seve ‘tenn ths fm he re plyed hy the wut theory. Unlice tie Senet heat cay int fake "Semen ine near nt ty ein Aron of Uy Tee © alien crestor we so te a lara theory or ater ess fos of H itatoey tock he eifete of cnt and we. [tie many pra ch mre fen sppaats ces {ie cal Examine ee exple ef welfare aaa The i the Aheory festa lng inden, ih sot ne Tog we The leon evample i 2 famous pce of the apain i welEne conomce. The th example, price dsriintn Feed cht 0 ‘pina tochigue wth many appestns Cato icing Indes Te ae cof ring conn the amon ‘he fly spa consurpiton ft th tan cet acally fever teed come pons The pat ya of rng el 1 fmean thers ver tine Retmecn ple f Hing ata coma Tee ich ian of courts saying the sme inference cre | Pe inden deep eat the sist tbo. the Cal fovsin and Auston gold Jgowere, arty have mo hse hei Inte connect ation. Tran tere fay ered 200001 {Bad and 25,00 fn 19S in which year wae heter a The awe {eth (pertest ind of he cst ng fe es han 28 percent ‘etwcen thet yar the fami wa "beter in 1985" “Oc owe fwcmphion mise made efor we can make any rogsete tard an inde uber tates rent ot change Foe ho ese cin he atch tthe sae Sve of satisfaction when ase tine change Suppone Sn a weston year and a Rear Frese the change he et vg for tere 8 gant fet Uhot side he tame station ge the prev qu fara Te erm illerent atthe fw dates, and the uct hes hecome the fh nef dng a ss ht il el ‘eins stim atta ven yr the average fanny hays two coma the aumento eure apples ay numeri qt al ga Coen and ae the names crm a 0 the eat pc a0 py Thonow ‘Dhe Theory of Wrilty {all in peice nernses the real ine of «given numberof dollars Bint a Tal in price wil educe the number of doles of ines received from the nal of X. TF possess of X yiel a staat orton of a person’ income, rue of x wage earner when X fs Tabor (ine), the Tater eee will be dovrinant. Hence a fall Jn wage rads will (1) Tead ta a Snerease in le whe cost is foregone wage income, ant 2) Teal 9 rkersvp in else, Icauso of the fallin real ineoine, and leisure ie a normal gon 1 the later effet ie daminant, thor fs a “tek Lending” stp ply eurvo of lar awa Tanetion of wage rates, in which move labor famupplind a lower wage rates, Revealed Preference Somo ecunomiste, discnchanted with the subjective overtones af nullity theory, have resort to an alternative apptoach, that of rewealal preferee. The piloaphy of this schol waa’ wellex reset by Bestel Manville, «most penetrating nan dot ching Plies whieh Mon any ars, sch a th sce tan tno Hoel ith Hein ever ene any Padding bt just enh i yo my tok te; ti ite Bt afer ah omping nding om aoe goes down with hin techn Tay afer tnt fie aon the Te with a voracious, Arti, ane errs Uimedf pte hi That, i not proveking ta nar Jin ery every Day Ua Pg al hs Delight nd iat Be dal the Hee ofa Banh ‘The ease of the approach is ta Took at observed Behavior, and from it deuce eerain properties of tates. The theoty is formally independent of uti, but i inconceivable that the right things vonld live Icen observe withatt guidance of Ue wiht theory Suppose we ean olmerve a conser at many equlinia each with a diforent net of prices and quantities. At-one tne het at Oy om pie lie Bye (Pigre 4-1). The individ prefers thi Position to any ather on ot below this bgt ine, or be wow not have chosen i. Tv principle (a phrase ase to denote the eonbing= tion of inedible cireumstanees an nbelivalte ingenuity) we ‘ond observe hin se Ino diferent relative prices, Let ‘he Foe of He Pew C71, (Oso, Ragland: The Chrenon Pres The Rationat Consumer tw ind the budget Hine (Bs) whi aus the consumer to cose eonbinaton Qoe &conbivation wccemanly inferior to Qu. ‘The sive of Qs reveals it to be preferable to every ater point on oF now Bay a0 all these points an inferior to Qae By sini ang tent Goris preferable To every point stor lilow Tine Hf the 2 % % ‘40 By igure told aie prie changes ave made sal nog i prcedre ll wo gears E15 On bgt Un By 3 Qui hse i re Ta rn hee a poms ow Pg ely iris pete o Goan eer ta Qu. ‘The combi tre oe Pile uct wl define eave which convene Uta0 a “aie yar tp ae fe eu Tethers onsen monnted| eet wen a a2 The Phoory of Usity if the income eft is small o¢ positive. But itis wot & vey wel hypothesis sneeall Keown demand eueves lave negative sepes ‘Many’ shnples lypottieses ein be derived, however, eal out Dreviows crample (p- 87) of an identical commodity saht at two Drew, where the consumer Knows the prises ant the fase at entity, The badge line, 2X 24Ns ~ 10, sisplays this sue ‘ion, where Bis the higher-priced sourve, Aenint this price Mes ‘ve draw tho indienne eurvs, which have the far Xt hy rine i makes no ifrence whether the consue has 3 and Xy or (Xs~5) and (Xp4-5). To tasimiae ullity, the conser obviously bays only Xs, for dhe higheetiiference curve he ean each is intersect on the ais (Fighr 4-17). This a eany to ect Tena in rine ronstant, % PPh 2M Applications of Utility Theory Or consider « wholly diferent asea, In ation to desire for profits, the enlrepeenenr wishes certain consumption amcnitics i Tis business (4 noble eifer, «handsome ole, 4 delectable seere- tary, certain socal types of associates)” AN have cons of conten, tn i rorespomting bt line as ndiferenee curve ae town in Figure 4-18, He buyr OC of the amenitiee at a ent of BA (ot foregone profits). In eevtain areas (public wits! th state re Tater prices to pi a simu on profits, whieh are reckoned after Bosget (i 2 Regu ° c a awewaies Figure 418 Insiness expenses which of course include the cost ofthese ameni- tics Henea to the limited segree that the regulation ie eective the budget line bovomnes Ralter—dhere ary saaller costs to the mente in fers of Toregone profits The new eins, ne sail has arg amenitie. The ae le, Sle, ta th aan lychee ‘eomet ant Cerise evens on effets on he ail sompostn oo eniury Gun" Aipets a Labar Beowmizs hh Conerate rte “UnersieNalnh cg Cam a” Sani achll quo pts sat fo ens ate dean wth espe 891) Fespct ts Fy Then any pant nthe rece repent ta Trost the given untie of satan eter gare Between the to Inside: for erample st 8.4 gets OM of stad pete Ayo gts M/S of fer gods and ets (gS) of eter Boas "Wah pe cma the pce eof (rate vat epet (0X, wl hae spe 1, he flo ofthe peo the sa to ha Sterns stale The pie in of Bl hve a slp of 170 wih rspct to 0% label Py ihe fst th Liscimiaation oe of ebm, the two Pie nes net St ‘Now comider pink Q whore the two ivi nieve corer ne tangent atti wool Be eter a 90 than ie each wool be om highs ndiference crv encaring tt he # ‘res ae metsurd rom hee ate any ponte sha. a ne Ivete them by curse Cae the coma uve) Oniy ps ‘onthe crve mative uty foreach manson the evel iy nine by he sera ny ith 9 mamta pe wl Te ini rte thi cre” Any movement log the canrat ctve Thr nation to wityauinzing hel as Bsn ng, bat reap nt eg eacugh, We sal od tha expe imp we half relying the eicent pret flere she fundamen Prince wth whe expan econ Bei Recommended Readings “Comérg Unierty Pe, 1 Sige ethene Pe Probleme a eer ucettah sed ecerote et an tre) ees res eae% ‘he Theory of Utility 1 the famiy had money ineome os in year 0 and fin year 1, it muse he at least ae well off in terms of utility in the later Year. Hb eauld buy. the original quantities, wo it was at wall of ‘unt it could prolly seach a higher iiference curve with CB, hy substituting the commodity whose price has fallen relatively 4 6% Figure 19 jn ovr slingram), sy at point Q,. So we can assert that the cast of fiving rose from year 0 to year 1a? mot in the propartion, ws _ spans teas tte “gua Estee ‘hig i generally written 2, 2am ‘ere the unmation signs indents dion aver all commodities, an £ is the mame (of Fiienne laspeyres) given to this indow ‘This the fran of the index use vo measure chugs in the eat of living in the Uaitad Slates with « sample of prices of 100 7 nple of prise of 100 goods nd services and new set of qanttiee (weighs) every desde Applications of Uslity Phoory 7 ‘The Lasmye inex measures the shang in the eost of fving ts the family lived in year 0; whvionsly another index eould be fle to menrure the ent in year D of the aay Use fay ied in ear 1. Hore in year 1 the fonily bought qantitis 9 and wg tnd piesa pon the let Tne steer ones = By exally the sane argument aed to reach the Zaspeyres index, vee ean say that in year O the family would ho at last this well DF FFE open sneabet sneipe = le, Irene it coli have purchased the year 1 qaantity in any ease, fant ually Ht could reach higher idiference curve by buying {elatively avore of the commodity whose price hed fallen relative fo the other pee, I fact the previons diagram needs no change fther than ta relabel Ry et yJly, td aff as yF.. So wo eonelude That the cost of living i» yeur 0 relative to Sear 1 row at most in the reportion, Mts sspears aR same mas = 2am, Bot normally index numbers are reskoned forward in time, 50 if shetty i the rain relative change in the east of living (ae in year 1 fromm year I to year 0, then its reiprocl, pa 2PM, 5s the minissurn relative rise fn year 1 mative to year 0 of the east tf livingas year 1. Here theo represonts Hermann Paasche who, Tike Haspeynsy was wot the frst t9 propose the index named after hin If we should ever eneouter a aso where @ theory Ts ame forthe correct mat i wil be noted "The Laepeyes index, a we have sald, 6 a maim estimate ofthe eng in the cost of living from year Oto yeae 1, and the Paste fk te intimin catinate. Unfortunately, they do not estan to the same level of ving: the Laspeyres inex prices theinvolved the sm fhe ae within wih he ait of snes s'tisen tn enue the Tendency to unsoraty in pie alow ‘aca il probably contin a ty ans ace suburbs ow te es {oftandees maybe sal pn oy Tor grasps hy oder i may hema ee nan frm the buyer iewpin. There io ptt people m Minne to hay potatoes geo al (ne ther han, sometines he market of a Stn hy sles Siler than dat anes ito fer wil have a reaivey sal Senin ah he wil sl hs cr the buyer way deal i every feu ek wat ie pon of cerning the make fe Francis Ysidro Bilgeworth ses. 1926)0 The Theory of Thity ia utility of money income does not change apprediably if only ‘nal amount i spent on eommedity X. Then every naiference Carve will have the ese shape but be vertealy higher or Tower tan otler indore curves" Armed with this simplifying prop- erty, we can now construc simple representation of consumer pl in trisofthe dead env Ts consumer ix at, Any ix the maximum amount he would pay for one nit of X (Figure 4-200), Actual, wih the inated rite Hin, he aye only. Ths maxim prie he would pay for asco ii, having pal a forthe st wi, Sy, This second toxin pte (8n,) should be measure slong HEH only ad was psi for the fist wit, lit since the indifference eurves are parallel Tretially, the sume x, eine on T, The process may be eon Tinwed to reach The mraxnny pes are fat Ue wetual d= rand pret, x0 the demand curve represents the maximum prices ‘hie ‘will be pail for the various quanttie. Menee consumer's furl ean fo displayed ae the area Under the demand eurve, and hove the pte line (Figure 4-200). Under the special condition ff a constant marginal lity of income, this corespendence te txart (ant FD AB in panel a), but in general this relationship tween eonsiner surplus and the aren under the domand curve ie only approsinata* A characteris oppleation of the consumer surplus technique fs provide yy a atnly of methods of solving the ater shortage that New York City faced sone years ago2” One method of eon coving water would have heen to change the lage mimnber of wets ‘who were not metered an pd only 9 flat tu for water. Te thene- fore sl not pay for those consumers to repair Teas oF oven to swear cut Foner by tring then of, al something He 200 eil- Tom alone m say” were sn wasted. 11 thece users wore metered, {hie smaount of water ould be saved, at a cost of (1) about $50 ve Nowiain” Review of Applications of DHisty Theory a ‘per milion gallons per day for the cost of metering, plus (2) the ont of reiing leaks, whieh we shall Igpore, and’ plus (8) the fonsumers surplus lost by restieting eonsumption 1 the marginal ost of waler was tse fromm aero to sty” 154 per eubie fet {ihe going rate). Ifthe deanand evrve bs taken a6 Finca in this range, the average valve ofthe water saved was 7.5 per 100 ei feet or $100 per milion gallons. Hence the total cost of saving Water ielting eonsumer sphne Tost, wa abut $150 pr ion talons" Price Discrimination, Ax ont Grad example of welfate analysis vee shall examine price dsrisination, Pree diserinination rises Tren a commotty Is sokt at diferent pices to eiffeent people Supnote, for example, tat alt i eo to ane person for 10 cents pe pow an to another person for 20 eents per pound all other Pees reel forthe fo pereons, The buyer at the lower pee nsimes salt unt the marginal rate of sstitution of a come Fonte "athe goods” twith a pre of $1.00 por ait) fr alt efor 40, whenever the Inyer atthe higher price has rate of setition at T for 8 Ti they weve lo exchange salt an other oos at rome {ntermetinte ratio, suy 1 to 7, hth would pia, AC the margin the Ipuyer at the higher price wou gain 40 per cent (3) more vale per unit of other goods given up; the buyer at the Tower price Would gain 43 percent more units of olier goods per pounil of Shit given ut Price dvernination plays the same role here as ‘tani plays inthe thaory of comparative costs: it isan obstacle fo auaxinisig ity. This kind of peoblrn is commonly analyzed geometrically by an antfie Uat is worth deserting. Suppose the to pasties have total of OY, of other goss and OX, of sale (Figure 4-20): perpen dears ave then ywojected to OF. "The sndiferenee enrves of indi- Vidal A fo gels sale for 204) are dean with respedt to Ys0%s nn those of feat for 104) are votated 180° and drawn with Teapeet to YaPNwe Then aay paint in oe rectangle represents. Tstibation of the iven quantities of salt ad other goo betweenvont of hoses toe vated sei, aarinents wil ao be bit SHOE chee nremancraties and mel ef mee they ae Tense. Threw adn onde fr aparent of {gmt te hme he ame vent root the county Ba hs een SL ite woking bres te ech of apart chanes 0 Shot ant mold by geganisl mes of sees ort land, which we cs ter Bese of Te my {efter ana f oman teem amos rete srt seo ge pewter. = , [pect mae ie hacer hy pve! howe othe pan orn On led ly pa a oe TU pe mre an ny she sl cap a er eps tha Say Royer wil yy. These cottons fan het aly oa com ity Cena mater, eh approsinatel by 8 few exchanges eis he Chicago rd of rade Competition 1 competitive marke seal dint oy for pent mate: i ‘hewn marke nich te aa buyer ser des notice The ce ty hv pass on cls, Altermatety state he est of “heh faing ny hoy fine aa the ely of dead Fag faerie “Rimaret may sbi he opts om alone ie a mion tyr ode tn oly rae slr rma) hal ees en ‘Slt wit one Mayer tonopny. Bt for the tine beng we shal fer Sich Sustons a dal aly wth compete sto "Hehe dete spect competing marker: what ane he conto nr hh may a Teas 1 peep and cate) Klee te st fst tlc lhe ayo pees atch ans wae aceon sls al est market ay sh ayy There wl hen Ten bescpe for ging st hi extent a tation termed atta Impey anaes Bf he pe fe higting sal te departre om cage mbes. hee st be enough baer o flere that ‘no ome sae srg ta ccs the Jess foes ad they at ey rbd Ronen the produ i wt hemozeneous ais meanings tsps tage pum Hence ee i esentaly ge on te matt for domes servant), thee ranot be bre Competion ® numbers Yet, i the varias unis ne fghty subsite for oe Shir eh market eat ex approach cmetin. 14 Drs of he rad We shuld me that perfect competion typical example of somcet every fe that has eo taken very ect ad {Eee ato somthing ale unrelated tte oil Tors Or tally chnpetion meat snap of tars rd ony tht at whe fear dnconered tht Be traers mph collate vat vue med ‘elrable to arate th clase won ot be faible Whew i was Teall that even teu ers an bers wee nt eo i each fair dcle i ipnrane ofthe thers, pf knee wa ee Te et recog nf heme of pact ce fom the at that en minor dference (2 snny daption or faey cote ht Kea some people to pay a sighly ger pice frome sie’ pt than for amr ped city hae ala origin, Pigewoath, whom oe have ae efor ana shal oc ag wa aol clever man. He conte "he fotos pbien tows (ra min) master ito svat ‘cheat more vasa mo conn cam nk ha ‘ance Each asi al pay 10D, cath sect il gsep BU what Tithe wage ete He) Ha hil he fete Sa S00! Reve Trueman case fr sity Bot Behe $50 ge ‘ant tn tee the mel an force the wage to S10 08 {evel Amie rp murs eto as) hms ae eno ta depen inal of ge ienge one fhe market ‘rice em ve ae dna the depart of one wether ade (Ga9) to aboot assed Teatbening the ovina for er ‘rte, amt his pres tr inlecne rice desye Phe reader hes atthe aeetonce of asamptons sich 96 rerfcthnowtepe and colts pet nosey he ith oe ia ight. Heo wrong tn denying the Blues: ofthe we of pre tthe analy, iho dang dhe ah enprea rekan e Sine ite eve tpi eo nay tte ‘market Rowe 3 fa uber of rsa sel ial wae gtr vss he vt poest The Theory of Utility 2. Cale the Lappe and Pas ides Ite abel nd esi 3: Sn the lw of X and vary as flows: ru.= vz TW, W¥- ew (0) Coste indies ero tc X ed fora evel of ete fia 2 (b) Bhprare the ty of eck comme doug (102 YF and 2 amis: dois 10 2 and 2 {i001 Cntr hn lice cs lu eee ot, 4 Demonte tat pone ate better of with rating by rie ‘ta ivi Ba nt ie the dat ic 4A ranma hile toi epiealy hes sae bis indore sren iter yo hae annie i myo ne he sang? : tthe mange tity of Yi constant, all adieene he wine gs gion Pr chapter five Once the demand curve of comtvodity ie esteblshed, wo know the pres at which each quniity eon bo eld, ut we ave bagged Avo sions hv consizeling Chie ed eave: what i the m= at ad bei competitive? After we answer thexe questions we ea sualye the pricing of commodities in fixed eupply PE MARKET A rose, cording to the masters, isthe aren within which the price of commodity tends 40 uniformity, allowance being made far transportation ects The pee af a eommadity “tends to uniformity” fr one reason the Injers at point reise co pay more than Use pre at point A yhas transportation, aad the buyers at aot larly. Or the feller actin Ue manners The market area nay wl ier between Buyers and seers ‘As the bayer of an awtomabile, I wil perhaps sea anly over ‘cove wih a Wool radius about my home, a Tunay ready {edu to Uae dealer for serviees, It his cannot ean Unt he mnarket rea is SI41G sq, miles, for oer buyers are toate eee Where and tir crclew of seateh overlap mine. ‘The market ea, Ze fare buyers aw involved he sun oft ates within whieh the mability of consumers is alent to ensure the tndeney to Uniformity in priv, allowance being made fr transportation cots For autonolie, thie aren will probably contain n ety and its ad jcent suburbs; for the services of gandoners it may bo «small 6st gtr vn me oop ff tt Sehsiectey ay ths hen nn set as ‘curve (5 in Figuee 5: “ty The demand curve fe ese by tse, Se te fs pie deh eae remeber pean ste ein pie Taryn a oa or wich eran Tc oan ide Tran ee pee om hhh nen 0 wwe song he anderjng supply ad demand coins oot petite Cte hatte mee ot neti ten cpa tem ti eam cot Se fe a dee em rer Blane i da any Si es Serene eye doen ma Sno wisest wet bsnl rm ice has the cot mS ty ly atc as ee eo Te Soe Tr Teer ay oot ed te 2 et capa cl al tng Cet Fae cag ee mpc Sel ce rm ee eS tne nha sty sh sae dette he terri whe sapere mah st ban ei oa, bot we Be ighy sn: the ghee accidental fall pie, Toe exam. woul sve pe eer hee Smanded. A sshe uta then impel anos he ‘quamty supp mus ower the pce so We Gn ths eel 2 Seynivey sloping demand curse Suabity cvs ie 8 sone of Infotatom st may pane he subacquet chee Te aba something we cin tae for rane? From hse enraly argued ie seetnce on the itive gue thst willy Thy ios relevant const gh nt canelsie te Te {tet some cumulative proce in erm Me (ee hae the sone of fallin nfo et we al low te gemcral act si semmaiir Rit? A few commis ke ct thse rr ad ttl rooms for rentom agen day im ven ae sre esetily {nner an ner peret competi ght he now the mht eh day at-an esate fallacy pce fon he pie ‘teed any cout of cans Thee een ay hs es fice ently stan shhh reeset waa iain ands on erty he chang pacer ce he plane om sede run, the rie of protec men A 9 | et Toerable Habit of pce fe nt Hine th pie hat price will oot he Lge (less soppy fgets) And i dean Pespomable stra the se ele om he aches Supe tt he epi af et ower fists erty an ha somerset Amster to he a tery gd state ow Howes yy Sel then vem 9) yt Rhy chee for foc hn uch if pices sre ums ow ap ice sera. a he pe relate abe “The wef f even he singe sane sab of Ypres ley ta fe unieestiated by stats nn hae ot expec he hit mem tomate mitts, Const ae he make toa {ne “iw saps and demand Py. Wat tn he faphalcebner wore inte i Plan soci igh af tc bese Pricing with Plsed Supplier 1, Pecfctknotedye. Uf thete is wot perfect knowl, there wil ‘vem atray of pines at which transtetons wil tke place, ond ost ea markets spl sacha array. ‘here wilt then often Jao aroe for igang st this extent situation ters lateral nnopoly arses But if the sos for hing i smal, the deartae Frau eonpetiton isl. 2, Large nvmbers."Theve sms be many buyers or alles if ene is to have on appreciable inane tpon tho peice? Rnd they. set nde 8. Prodi! homogeneity. TE the product is not homogeneous, ‘s meaningls to speak of nege munees, Henee, i every un is ‘ssetilly nique (sin the mitre for domestic servants), there uno be Lange nunubers. Ye, the varios units ave highly be Mitntable for one another, the market ean approach eampettion, 4. Diaby ofthe product, Perfect competition is typieal example uf a concept of everyday Hite that fas Tren takin aver by economists nd evetoped in something ln orate ta is original form. Orsinaly compet ‘ion uneant a muliiity of tenders, nnd only that, Ba when i was daeowird tht taare might elle, Yast mune sue Drersaiy to guarantee tha ease woul nol he fenutle, Whan it wns reais that even a Chonan sellers and buyers were not ‘ough each poi deal i ignore ofthe others, perfect Knowl. tig ws ald. The expietrerogition of homogeneity of palace fae fon the fat that even enor lifeenes fa sunny positon fr @ faney container) might lead me peuple to pay lightly Winer pie Divinity ns 9 similar origin. Rdgeworth, whom we have met fore ca aball meet again, Was a digholially lever man. He sontive Ue flowing problem: thasged for milion) masters ine ove servant eneh—exaetly the number availe-and no ere vane ca work for two masters, Each master will pay $100; cach servant will wept $50-—what will the wage rate be? hae ell bw twee $50 and $100, aid ene indeterminate, is enn for sie. Tei he $0--then single servant ea leave the mar etal fore the wage up to $100-vo even perfect knoe, les uvnbers, sl (let us wasume) Dornogemeity are no enough to dee lms ye at ar at tev ely Competition = ivan individual of «large infenee oer the nara ie, Hone fre ae viiiity 2 to dare of one worker ews a to abot Bo-oecond fnathning of te working ay for other trotters and ie power oases pie be daieve> the render Ivins at the aeane: of teumptons such ae perfect knowlege and somite prude. hong, ei I fong. an ight Heb wrong in donying he ells of the the of pare, clean cone intheewetiol analysis They confer Slsty aint felony onthe analy without depriving Uke onan Sf empire relonaace le righ he bniven the etree Stnnpttons are ot neeuiry tothe existence of competion’ i Ie faint, fr exam ies trad na market Knows fr tn thr of burs and ells i all ears together have wcompreen- sive knowledge vo ely ane pee rae Te ress for 50 ing the wealect emnptine tcesinry eonliion) for smpetton Ix {hat Ung ae el ts farnulte ant nf ae nt non ee ily Again ore wok forthe net ereraion, ‘The Dem Curve of Competitive Fin ion of Since the competitive fn eotsibates only a siting ron of the foal mart supply, it ae fing infvence on racket pen: We may illustrate thi infaenee by consering a market with a tnicary demand elasticity (pq = 81,000), in which thore are roy 10 i Hah ies 2 i athe re eae $1000/200 = $8.00 An waldtional sper now appear. Hf tho 100 finns continue to supply 200 ants We new super fares the dex sand seed 3 oats = 4.905A spiel Wy sles, ak mec ley ay hat sles ish ies tbe pont of he tec ha they ide pice to {hes fv ste Th he toa sc (OF) i an stl fer 0 ify ane thy ate ts mang a (ead Frey “bajo and sche Apne ths pec tal prices we {hin he ape ema cave Da i terion wt het ne een pie “Tvs Contton sos Wore than eva the ior problem of closing bays atte. Himistes cmon fly. any ei ves at he of sopra eck or $4 en, ‘Tee dy, hs eo thet” pce cae ces ame ‘avs wend" hge Bk hd Boon thrown o the abet be pre eel! fave fallen desta Indeed mig hve ut huge ick hbo town onthe are hs wou ave meant i ay Twas ow heered th sek nae por investment the ie Th tet re dees ded has Be pc stud. Se the ire nt waa mo mh he ac oe son at et sc thy were ity demanding the ek Th pce fx tat one could aor bays ge ak the oan ‘sang ck st he mkt pie sy ely meas hat ome ‘Some die the demand thon sence pee he her aa furs commoxty hast ke account of 9 elements rte 1. The arial wey (measured in money term) he dies fo wg he sommes Examples rete enue fing ca “a ving ing vo cashing den checks pd on 2 ‘The change in the price of the product fo “The oa ren from big. the comma ten const of he si he iy eed yd a he ened nrc rielapy Thon ofa fates of Res Provera Poli ‘Fran! and Taatn (181) of which tere re pechab 4 res {he war eats pret fe Bocuse the namie eth evga ean, tn theses a cael ee ce Detention ” received on sume money ines cas compara nike Uhlig Rin’: Princes It dd conor eu a the ok tn have the plete of onning it whoa ext, whe eesng the Increment af ale In eit act pte (marion es tothe her, mart el the cnt of hing te Saiepod s est Ireompose ofthe stun tht coll e eae onthe clue (heres the appropiate tere), pl any cat psn fe food insurances pnting and m0 et) 1 Tolloms that when the owner i equiv, tbe peter he ‘slay tne deed (om heldingn sommes the owes ms he eae ‘tineeae of pice eope wll ot hard a ho of mss ‘apeted torte hy th ee f stoves they il bl the Rie oF Bain =F — (ofp) pect, shore w/p i the anna tity of possesion por dollar investi te Commodity. Riso Ppl cat more than 85008, 310 erent interes ate and af) 3 percent nse each year i the pie [he fk, anonaer neds to get at ent $250 of pene Ir ‘oeerehp eich year Speciation [A more inferetng a inportantpocing problem 96 ps hy the ‘hitence i tsk i ge at ae frealyprocel product are of our the kadng eat The wat naomi en Fenny ntl the new crop it fared ae ter toprol seer ‘rout the period of el eps at he ete Skil Be mame cri he year, a pre nciiyove asses Sint tere cop ences demand sd te fe The former tek ley the ever tthe ded fr fa sts a tee sis sae we the oa fs eat tng thee are some repr an etn fctionsin Sa te {cutie in commerce sess changer pucaes changes ‘nove demande si sn omit demand rs chee ce) wee soll tenia in every mth adm arene wae nelle ie wouldve each month y the onc hing he sc. Fae Tce mere uno ny kr the month nul ave he sce af Seng hs stock now a gen pep of badge ad fecching only (p= here the tof caryng the 2 oh Terr, heli mw, wl te cave pce was dpsed a the price next month ceed, envugh fo ce the ctf yg a Stok er month This Baal Fc eee eect the met ot ‘haveing cmumer forth see of lng the a@ Pricing with Peed Suppice five years ot hey inclu also the muaber of shares of eons fe ye 3 shares of canon ns aig tla company, athe nn fly ini i ey at et for tine Hise the nt tant cn tual rast ce "he same aps of sya Man nee But th al ofthe api try ae Soa | | lant rspret with one clnractritie af communities and services: ‘an they he tar? He us eal cominaities hich eannot be tore Pershing, Ws estomary to esr all goods whieh wll note ie wither tine oF repented use as peril, bal thse whieh may te tse only one {ikem bulk) ae often table of tora 4 long perio, eee ——— % Figure 52 Te Uraultivoat ease of « povsking commodity was fresh fk or nbertics brought to market bere preservation by fresing was Price Determination posible. ‘The stock was naturally thrown on the market (ander fompettion) for wht i would fetch, and se may translate this Tnlavior into a vertial supply eneve (8 in Figure 6-2). The ser rand enrve ie determina ly taster, income, onl pion of ter fn, nv decribed in previous chapters, nd the Intersetion of the te eure aps ql ithe eiieium price. The quantities ‘would be per ay or ols peri for which the perishing commodity remained salable "The exulibrimm price e the pre from which ther eno taneney to move 20 long ae the underlving supply and demas! conditions "lo nat alter. Tee a stable equilibrium, in the sense that f the tparket is Jarre of equilibrium, Uhe dominant feds push it bac {oward this oquliriam poston. For example, if a rumor of a shortage of the eanuaodity drives the price nove py the fact that te ananity sapped exons dhe quantity dena! wil dive the Price down towarl equiv, "Tse terms were abvisly horrowel from physes—has the econ= ‘mist ane ure tt they really uke any sense in ceonoies? "The anemer i, lots hope, Ses. The stability of equilibrium is inde the normal state of affairs ing tlerably stable work, and from itive duce importast properties, For example, there i a myster- four dotted tine Unough (Py qs) in Pigure 6-2 whieh T have not Tl the audalty to labels demand curve: TE were, the infers tion with the sspply eure would still be an equilibrium pint, It ‘it wold be highly stable: the stihtest acetal fall in pie, fr fxamplc, would drive prve ever lower, berase at each lower price the quantity supplied exceeds the quantity slemanded. A stable ‘oquilibrium, then, implies that an inerease in the quantity cuppled tnust kien the pie, so implies (in this ease) a negatively oping tlemand enrve, Slaility conitions are @ sonree of information st tnany points in Ue wulseqent chapter, Ts sability something We ean take for granted? Reonomists have onerally argues ls segeptanne on the inte ground that wily Cnstable market pris tand qanttes trae) are not often ob erved. Thin bt Flevant consensus, although not « eonlisve one ‘There are i fac some euiative proves in econ life (one he the name of galling ination), but we sal follow the general practice of ewsunng thatthe epiiyia ave xable ‘Now that fish atl srivberres cnn be fren, ae there any pee ishing commoities lh? A few commodities like Christmas treespee 57 ‘he i wth, wih ths date tk of rong he fe permed i's mide pint I nena hati ane can Fret tute picer essay than the profession specie. Soom es Sst mney eer qo. hiv ake te {hat mast monprfeson (uo, hy Harman ow ate const being rented oma oe ss hy rig min os ee The publics andres armers have eeverlessalays be hostile oman the ops wave ade the econo argues fine peed for someone pict the fatter thing rs tthe treo re eng, aes Io gait ean eo od evoting ying fess the ey to mate or 3 wake mht WEotsate eam agate prot of ths popula suxpn. THs icy el Adam Sith) Te menses tere 9 certian ey 1 be Tectia at pmo be ll aso te ‘Shurnc ingore bso ins pater mac ene {gu smi rf the sne markt, tat be bean jes th the ‘tguttuar ccs tnd ae poe etre mints oe Whe ‘sant i pce me ae mes SIXERS hcp ed xe bck een ae he tig Sharan ene al rt mach mare ental she {hoe pam ep sin ya age Sophy tenes ata cheap an ayer moet ay he odes ‘Bite ea ao ewes hee on 8 rte ] Smits commen ne nt noe esieaton. The popes that stele alee) y nd ts {oatmeal ow Any ge ot patent ee power eo pis halen ew ee gs Games tes sy hate hae ying tn te ‘When he Hot ed sit scsi the poe iver tet, icine ck of sd sve hegan nape othe Imre, and this wav one portant fair tn te ap the pe fram $40 tof than S10 ance Ss fw tote wh stapest speculates hover when he pure eres le ihne nce hall twa cs, he wm pom a ee adn entered nt compacts hte dei Recommended Reaings Problems ‘po Rm eect ie eat so to be ea of ats, Nee Yk. Mie% Pricing with Hired splice Storeable Goons ts tur the more important ease of streble goo, sha ck or hens of wheat orthce Bit eto, Now ie opel ‘curve is uo longer x vertical line, denoting the eal altamatives for thes total abwenee. of for he has always the alternative of sl igus 1 Fact the very ieaity of el er may etn, Jones ma sell his f ‘ - ll his four-year-old ear atone pie, and ly sand at anothe, Wheve tis unewtainty arses i ean’ be dealt with hy the devi in a suarket into “buyers, Me ti. i wo have none of te commodity, and sllens,” who pes nil stooks af which they may wish Cor Yo augnent or to sel). The "Iayers”” desman eutves wll be thee tready discuss in Chapters 3 stud 4, The “sellers” supply eurve, as we lave sown (65), wil be eonatrcte in exuely the mame way, These curves are shown in Fagor So. Th otal stock is show Price Determinetion o ts the vertical tine PC. AC any prie 04 w definite quantity ie ‘demande hy ‘yuvers" AB ACs pre a quantity AB i supplied Dy ales, lit we can alternately sy Uh sellers wis to hold BC? a this pice, for thie $e dhe portion of the stork whieh they do at offer for sul, Vhs ifthe tal sock (OP) ie 150, ad sellers tlle 110 (48) at pice 04, they aro impiety demsutng 40 units GBC). If we add A and BC, to get AG, oe have the total quant temandest at this pee by Slayers an “aller” Applying his procoture at all pices, we obtain the aggregate desnand curve Dy, tnd ite inerectiow with the Cota stock line seta Uhe equilibrium price Fy, ‘This construction dace sore thaa evade the minor problem of classifying buyers and seller. Te illuminates common falley ‘Many people have said that if « sock soll for $40 « share on seen day that thie not the "trae lee beeause ony a meat futher of shates wer tradkl—if x huge block hd awn thrown fn the market the price would hive fallen dentally. Tedead night ave, Dut Hf a Inge Mock hd ten own on the market (is would have meant that many holders now believed the stock ‘woe m poor inwetent atthe pri Uy effet a lage devrease Ih ema has bea nptieitly asumed. Sine the large blk of stock ‘was not theown on the maaket, the holders thought it was worth 1 Lest thie much, The fet thot one could not bay large Boek of the company's oulatanding stuck at the waeket price, siuey tnerely means that one cannot double the demand without influene- Ing the price. “The ber of « durnble commodity has to take acrount of (#0 clement of rer 1. The monginal utility megsurd in money terms) be derives from holding te camo. Examples are the plenaute of diving n ear or of adiring & painting or of eathing dividend checks paid foun ook "Pie ratio eel the i wit of retrace the nnhe Allocation of Labor 1 or sexe it asa fo a pes 1 han {nym That peste doubr pat dae iris flys his ceion ace devrer wll ferme moe eet hecaleay works si the ame flow wera the some Kine "panna the same coneraive prsicine iment Bat we Sha thety dncoe Semone Hows of Work (One che tha til suvne is determine bow tong 4 mk, How Shite? 324 ek wr ofthe wee, the St mesh of the Ya, Five becom marke tok and letare™ Before we ales the brewer whch ff curse, "weak the ara tat mains ey Shee war 304, or Sl burs week? AV Sor SE mesh aly {he setae chen ml ec the average the pri that Mok ‘minimum and hence allow the workers to he rere at lower wage at is Wa hows por bent Pewee wk 3 et the open tothe prs re pen hy ta et he {AM Fane ts the apo tha he ea wl pes ly ‘tite Inne Thi bat og hi the Feo Money inne = as John Stuart Mill (1805-1873)100 ? vith Fixed Sepplice a given future date. These estimates may be assembled into » The average expected price is then simply the sum ofthe products (of the exjwet pees tnt thee probatlities, which i 8208 In thi fase, "The rontdenee with whic this estimate i held my be mea sured by the dispersion about this expected vee (207) being approach with the above dsteltion than with whieh also hae mean of $207. Presumally he will nike large ommituaats on his prediction the greater his confine si TE the commodity is ne that fas no futures market—no market in which contracts for future delivery ave not set rater will buy wheat if the present pie plus earying costs than $207; he wil get ott of the market if ts ie not the ace With fats muket,Rawerer, he wll sll contrat ture detivery ifthe priee be expmets is below the Futures pee currently junta dy tutes eontrats in the converse ease) sith the hope of eoveving the contrset (ith a "spt purchase ren i atures tthe expe lower pie Bach speulator i iffret rt of exportation, ae a diferent fensnteapply foveton for tutes contaets, We’ may wld th fogetier to wet the sgyengnte seman for foxy) May futures the presion T a fanetion of the pee of futures eo frets: i dente Di gute SS. Uf the futures pre i abn Price Determination wy the price tht speculators antisite, they wil supply Sutures eon Ivack, ast at lower {ures piers they wl demand contracts Te apply of fatares sonata provided by hedsens—of whom itis eaten fo aioe thowe who ty the west fran frees and “pply storage they do not wish to speculate, they ean eiminate it vise by: selling futures contracts at piers equal to at least the euveat pie phe earying ont, Thelr supply tothe Wit Ue speculate” dened. (DD) BX the present price of futures ‘igs derang D (ea Seep nity uernty oh Futaes $e Supe. a % Berns ‘The skill with whieh his detieate task of reading he future is tevfornes ie tnorhedcted point I = undeniable het if anyone wr predict future prices more aesiretely than the profesional lltor, he am take vast amount of money rather quickly Wie loounseniale that most nonprofesonats (who, by Baraun'= 3) mani to Ket ave by bor to econ rong nes from relat "The public sind expeiity fares, have nevertheless always been ile toward the speeultor, al wate aside the econo = 7m 1 prediting the future ad taking2 oy he peace a) sake nt ng pee Awe py toe me oa ee ne So ‘cg iy es foe moe wl sane ine ae sheep apie ‘cn apa of als ahr soc ce iin he cif tet Sera te pie he iapurg notte as ets ie air EELS eS eas 103 ‘oe hy he nemo aed ete ee he Alloa of Other Pradtie Series 1 pcp me coat et he my ev abs et fal can pty abst fas tat her sn oa eet o ‘eis tay he ma aCosts and Production Tis noeessary now to lak more elosey at the nature of costs Ocesnaly oe wb notes of ay man an eres deta gle wr tno pean ald tthe lower Poel iene were ator met tha wt le, hiss i iy ith nay cnr oe ea Toten Revo aie bata corp sae be so Yaluc. ‘Ts pico tnmisions cms Msn ar "lantern ln Me et ai lose yng (“Te ney” oot of ventures They a nh feo a pric of atalino, yg a Tei ety tn masafaeti eae i whic historia gost are seen tobe intevat to pris Sth produses a eemmotty Tor 85, Jone tor Swill they recive dierent wiser? Sobnwon ules howse for $2000 which tts ot devour ell for $2000? Ting a ruc for $10, nn ove to be a dlamond of remaratie wily Ini fr $10? Some Indians of ustinabe thar fetr soll Manhattan sll (which they aid noe owe, for $28 typi enlition of tonsnty The shames we ele ‘how that sta historical ouitays ned not govern valve ‘The Nature of Costs 105, Tn every case, ofcourse, there ws « miealoulation of some srt: Joos should sve been more eficent; Johnson should have beaten ‘of the termites; the seller sould have known it was a dicmond {and possibly nature should ave hiden it deeper in the ground); the Datel should have honght the Great Eales: But even with pe {ect foresight historia! costs canbe relevant: they exelade inter. tst (ne accountants reckon eos) where a wine should wel for © per cent more afer year, 100 i the carrying east (a4 per eet Of lst years vac) ‘The base concept of eost i therefore something diferent: the ost af any produstive servige to ube 4 ia the masiioum amount it could profuee elsewhere. ‘The forgone alternative ix Ue eat Noo thal the allerative cost sets the ral of He repute to use As Ht does not hy Half act the sost of producing 4's product. To etermine the cost of production of 4° produc, we most know also the anounis of resourses used to poder given amount of 4 and thi additonal relationship. (aummarized as "Ue production Fanetion”) ie examined Inter "The alternative wes of reoutee depend pan thease for which the est beng reckoned 1. Tho east of an gre of land to agricultural uses the amount the lund eould yield in nonagrieltral daee (residences, parks, ed +0 on. ‘2 thie cost of an sete of fad to the wheatsgrawing industry is the amount it would yield in othor agricultural erops (ont, com, sls on), as well a in nonsaviuleurl wes, "3. The cost of st eww af land to wheat farmer X isthe amonnt the land could yiehl to ather wheat funers, x well ax all non eater, 11 all tand wore homogencous in ll relevant espe (ineling location, fertity, wud the Hike), obviously all three of these alter= native costs woul be the same. For if haul yielded more in froagrientural ee han i agreullural ues; sone of i would he ttanctered to the nomageieutata nos, and th transfer would go on Tit the pies nal uses were el (ander competition). quality bf yiehls of rsaures in every feasible see metseary Co maxima Fetutn for the individual ovaers of the resouree; any diseepancy,evhlty on sine of fet, Te Rowse an fe il of moe epet ‘Soc pecan ee owe 8) ENP ‘One intersting reflection of the sliance wpm the ini 9 the the esi penaer for theft a chery 1 het Stele S10 the peas mil e-only mdestelyUeger ia H he Stale S100" the Sst ford to take sable prentions to ott agers of ney * He may protect mel rm hl By {Ee ae dept hones eof entre sch we ake purchase ‘oneal sentence hong priate manner Ganbing anblag has ene 9 or dea of tention i the istves f both froainy they and economics Ha stones mach of the Herre {ie been treed the que: shall you gambit The standard raver fora hing tne was a Conder ihe or of afar game {tne rte im which om average the gambler meter win mo se Temang sft tio seetng abo etem omer fom bt of Fandom tues weld be a es the amount wo st ete ‘pa Weve sien ote he ose of ty trom fat gamble in gue On the appreach which ete upon he wampon of The ‘iminshing maria ity sf mone, he pambler het wi, on Serge ure the lty did fm the aia partition tthe {imble utich we have ined) i enh 1 oft the ect sei ity rom he ple Sic le aoe rms af gambling ne 0 Peroni prtpation by the paler (which en Beater soe of wnat the super of he fable nist ke Ieanp, the Se 2s ping em eg he ae rm oop at he thon they Sul Eaves tee each pm Yo Fe ‘With ving stn ofthe curve the aril tity nf aco JTC tity ec the expected ty pie fone tet of ACD) Seeeis the expected sts 4 Bat for sone pose lng nes, ‘Sa sintsneonty pay io hy tse “Te Markt Sop Canes ww "The Market Supply Curves, Ghutole, We can contract market supiy curves for patio ks hy the sane posture that het cmsioct tarde demand ees Dyakding tgs the quanti fx pute sere tht ech peso Si supply at pen pe of hn serce The pneral proper tthe ee apy ce of) ts i abr wh flow Be sped erage of the sna supply carves, the web hig te Fev of net ese ped yea pe We aks expect that a8 with demand cures, the sappy cares of reductive serie Become more ste with the psp He Wik The pace of tine, weer em eta for aot cept e ne tecanoher octon Si nthe fg tune cam pare oe and Forsubdiianne or improve te gait of greta at, TUner competition roves wn the nse of hes an arpenter sis wa hm i be ih ease Das ne Hyer tes so Ea fraction a to have oly a hehe nore op oie Te108 Conte ond Protetion ight he 0 years. Two ask about the Jang run with respect to te tersining and relocation of young glass lower the period may Ihave ten atven years. The short rtm is easer to defines nt al adjustments to the force we are studying have heen mae of more Snyply, itis period sorter than the long ran. ‘There i & widespread tondeney to Took. at only the shart ran alternatives in juvtging the east of county fwhen altematives ane eonsidre at all). When Trane frome rents during sultant inflaton, there see to be na serie eas inthe alternative sense, eines are darable und speciale, so the ely ean be ested to renin the se with 1ow vente as with high Foe a wen is fs tive. Over tne, however, a landlord ea and wil fam did edie maintenant asa device for withdrawing eapital fam this ‘unproiahle fel of intstment: Over a il longer period esp ly of hones will shvink—-none wil he built (privately) an the lenents will ele thse in easton. Th the Tome ram howe cat Iw built ad nnn only with resoures that have many ther ‘ses, amd no scheme af Hiancing enn avoid the alternative oss ff these msuurees, "The alternative cost hory is sumotins replinast as tho Unrea that there is no eich Ching asa eee lina Nontonctary Alternatives. The altersatives to given ws0 of @ ‘soute often inl also nonsinnetary elements. Tn the employ ‘went of lar, choy incite riskiness, the eonditins of work (eles Fines 3 vx 6 coffee bres, an 0 frth}, prestige, nnd sar factors, Int not the prospective inercase in earings with tine, ‘which isa wonetaryekaent. To the employment of eapital kines is the main factor, although in some arcas the ability to with trae fun apy’ (Higuiity) is ala important, These nonmne. lary cements obviously must be reckoned with monetary retroa In analysing the alloration of ress aang wes TE wolfe an immense Ion if oe could always translate none monetary elements into “osonetary equivatentae” We woul obs ously proer to say thatthe altermaive cas of @ men to the Tegel Iwofessons is $14,000 or its equivalent, rather than $1200 ps the amenities of being «professor. Within Tints ts posite to minke diet estimates ofthe monee tary value of these elements. Far example, the longer vaeation of ‘The Nature of Coste, 10 ie ae ofthe ai sly? tn aepaton en apie te ‘Neto mae sent eh rei or saat ent Mere we ny dele te montlry entaen ty retin equim apa eum 46(00 es hay den {St ler aj for recs tang Some nid ea a ee eben emi et sara ite ts ve angen) a hr “tect tifncce in sey awl mee ‘ican ar nce of fre in 20 pt et than thf cae wun wrk ae ai ny fet eet ces fl or st arte. "The monmanctaryretarna o seldom an invarible part of the 1 ere ite oe al ting, pnt wae them oem he ds oyna Sas Wy stewing toy lover agent workers wh Ue erly tact ‘nal tag, tho eplyes el Bite repens a allow tine off to ae sync 1 der ae wea ang ci ental tay ae sme th soto ge Coney te brome ty he yoy tse ua the aie cof Wateaate detacarrer COSTS AND PRODUCTION {Cot te tetas has fee than al ies, ‘cho tonnes te nator excashnally ner shyt that Sa ig Is istrict ne see{etch thy did owe or $9 ep ex vars, The Tn every ete, of couse, thre was 2 csion of som Jone ale been re esent Teton shld hie es te ire, the scr ivi have known wah The an me fc hres erent the cost The leoaine wc a resoue depend yn the We or wich he sts fre st at the ing 4B Léon Walras sss-1910)tam i and $8 vn nagar wt. Then the cst of ho 10 is metmes sot the ely high wage fates of Amsco Acree nt tht sawn ies Sea th) mt en SOS iene ai et ‘The aleronve sofa resource wil fen ite, adn fat fone in the ahr fn from what they are inthe long rom, Thi st ‘say te of pao actnesy doting ele an be wed oy oe the porpose fer wb was designe f sta. Bol ose tie i thros depredation soaves that can be fenvesed i oe fs af ta The same stanton hols wih expr to abr etpentr ha $ermavececpatons aly thone Bes that req is kilo ae es hilled (he can Secome a unailledIaboret. fr example). Bot en fulcen time to be veaine, he can wor i 4 ssan-oe plant st erome an clean. Given sill mre time, cvey young an ho ‘Stherwine mois have entered this scopation wil ener eo dred ‘thers wit demands fora comparable quai of ior TWelhe aendyretesd othe "sr nan he "ong 10" or ‘example ta sonnet with demand cores let we Sok move cant at There comecpt They do at refer toclok ume bat othe tine essary Fee pope to apt ally Yo em conn Whe automate ache) took over the mating of pas containers there waa rea fedton i the demand forpcblower who un hen had hon awn the ete of the arian Tove inthe sacpaion experienced ret Fedo’ i fleving the yong (andre asl abd pay eee) ‘members went ino okt xsupatons ‘The oker Morkers held un tevings fll een blow What they could ear as unsil Laborers ‘Evetuily a appeared, ccet for» hana no cote to pode aston product het long ninth pri when al eactons to he {icrense neon for pawhomers od ben completed varie ith the quescon we mk. If we ast swt the bg sn ath spec he umber of glasblowr, Hira period Scr fog to low eh ‘Nihal n thew ening the patina ehh wo at Sou apprenices Ts might be 30 gers we ask bt en on Sth rempect to the retrming and teletion of youneglsbower the Pariod may have heen Seven Seas A short un fee defn: no a djsiments to he fore ne afe staying have een Made of ore Simpl it 4 patiod shoe han the lag ran” Obvious there ca Be [Bor fun of ieee ie “Theres widespread tendo to lnk at only short ena in jodging the costo 3 comma (when alternatives ae conser st Sl When France ove ents daring statin, hee seed {obo no serous coin the alleratine sense, Deli ae dare tnd ‘pele so the supply can be ssumel to ra hese ath kw ‘Eo awh high Fea week tiem re, Over ne, weer anor ‘am and il and di) sedocemaitenines at 3 eve or whan ‘Sip from ths unprtiable eld st sovestment Over» atl Tone tid the supply af tates sink one wl be Pu pit) Tn th elements mil erode town exscace Tote lg an heseM6 ‘eosts ant en ALC HON hn scheme sf naacing ean oe the aeite ene hese urge The ernie they om he teal athe thee thoes fms hinge re lane, even Fane emt eae, he ais 8 ef sour oeinie trumoorian skeen The enplyanest fh ity nce riko te como work (cen yer 9 fale res, and so Tor eesti and sii fete hat ar he foes ncene tm asige wih i, wlih ea rontay lem Tithe emplient st cat rakinese the main Tater tow in Stoves the thy to wim fn rai gs) 2 ao tapotnt These tonmneary skments obey tat betcha ‘Win monet fetus in anny he allan of recs ane wk bean immense oon if ome cok ays tame ae smontarycltens ite noactary eins” We wat obviuly prefer to sayin the aerate eon of 2 invert leg prosce Si oe cues rater in $5.00 plo he amenities of Dn 2 pooner "Winns tc pb to make et estes ofthe meta saa ofthe nents Fre es aa of ot Xin tar ford prona aa consomed on fam) can be appa "Fe etd ot ale fr element sah peso sh | extn ae we tay uve the muaeary atten compat teins tothe factor sn gv i hee Fe fee comet in {Rims prfesur ens Son fs thn aden. fer adastent {Oe direc naming inne kind, oom we ys a {ifthe mor vane the nnmonetryreturae f teone seat {elaine tothe tot. he ated, boot alte problem ‘Serminng wheter ame hs tte ding gen evil, A tneveimpercn mta pspl et the sera may ot De {hus sen to meni ala apport ab ts ove the tim wih computing Supreme Cur Jsces and there “npn pest ul race habe had tne) hd The iia siege immunity returns il mewere the Aivsene n mmoneay clemency athe mop decay he Nate Cons w money bor income of a fame 6 20 persnt es a that of wmarale tan wore here wi fe many fame oh fmcar rtarm are fg, a some wh woul tle fring incon lt 30 percent thea Bevel ur tery te ning ofthese deste ares coma fe The monetary stn re seldom am havi part of he ms of a ence: Hm hes tral sein, aon el monet he ats to supply this eae fen sp antic my ewig Nite pay lower wage) If werkers wah the opp eure Sigiiomal gating the enpvers wil state prem o ow re fawn cies leer ate eff sin the ap they ee “tied wit sonia slignons soporte by pele of at of the For graiyagly large suber of exmomic problems, the now monetary cements ned te extn Often fy are eetaly Ircevant, 9 the che whether to gow yer heat om frm Ttwst fds i cheese papers pap len they te tale ser stant preset, tat te ore selene amen Shi dominate the movements af escurces For empl, ome mold ave pest the pelerec: for inverting thane ether haa br to he fie hereon Canad andthe Gott Snes tal stems woah tone fon year ea hy the ste tm ae erent the een er of dcraminatry resins By The te an net {he henevsent infucnce of commons nolo Private Costs and Sova Costs ‘A shea plant tos tsuneo mate pots amd ditarpes| ‘hem it sey tat fem y the plant eco ths plat Sepsing of mate then the cet poping the tes the seam foe ioe precise lng: the cst the foreie aera he ‘esouees ees too the pumping) It pltion of he ea eee the income of her ope desing ere se king ‘heater unpouhe.tod son) thee areata cst home My tuts The cats ie nda nae Teed pirate ce whi ‘he mol cot to enryme calla these tf se dopa “here can hema det ottheenstnce of thes external of a8 ‘naiadeats heir In acim ope hese ey Tew sc thon etre soanjoente aru thet WT sate yen ‘tet the commune hope al bent By seal ee me Sighted ctzensi, and th HT grow a arate Tae myrigs ate please if Sith ese aby he other members of the Une Sates Senate bev annoye ‘Onc the mow tendencows qustons i economics has en: when social aod private ease vege ppretbly, sl competion Ted to et acts and pce) Wilt We chen plant unde erat sel at's pe tat dos ot sover the est fain. so {teats il be ton tow ad utp oo Tare (th ve demand for tease Tor answer dhe question, lt wt ft to another cramp which apps hoes Tong ea sty hat of weandering ete To 8 feu ihe dovt fenced ams growing grin, exe er {Sine scale wi ult fenced im ecasonly wander int the ‘reorng pn esd dame the crs ering scot fh nap om he scl wp he we of ‘he fm for ate desl omy Hf the ana net Ince of the Tap saps shat in goming rainy the lesser the vo soem {ithe ana caf fecing the ete Tam. (2) the damage othe treatin cope: Let we sme tat eat aig jst met this Heat nec. oy atl epoch tiene wl earn eo cat han fab A ele mee Then whe comer to eta hore mi be to mich mei ad ‘ot coagh pan in the cosa. “Wemenn aspect thng hy too mich ment and not enough gin ‘supose esi cot of 1 hl of wheat a 40 pound of ret tren came the se eve an produce ter. Thai he pes irc qn) sence commes ly rns mae of {cheat pace espe he eri reached when 800 ponds {pests orth same pe 10 bases of wheal The conser them ianeren rope hate of wheat Is added ond Spend of at Iiken away trom hin But gn the aca ety mow be ole by Feavvag met outputs pone fo ohta -2 bases of wheat abd the ‘Sumer woo cose hs O25 babe le a “Ths in ft an sane of ener Sonsumers wil be es nts tiene) hen he aie is of ie oa tthe rate (ral) soa ests Whee pate fer fm scl sous, oy th pti postin lat Be ‘exe cate a wig cal it lene st sel Yeuirement tt the ale sae Ir the cont of fening damage to etre wll Irak vate asi tts un: say abana aes ‘oponal Gemou appeal ot Bal spose, to fevers th we situation, that the 1 avg es eve catering and tum a mt furor enter The argument compe rap ba the nw we eah the eocloson that the wheat fare sald py Tor the fencing seb al ha crests the role of wandering ete fn terface to st the ue (cal oof a whe, we shoal ake Scot of the damage he ets on ce aes i hey should oe ‘mle have to era ensen We mead tI oc ingting eR Coton grain gers the oe imposing the cose ae ses Te fandanental symmeny tthe ica ate an ain formar, orm where he iw pcs the iy for dae ‘Sree cahoaton. atts ons ve hey the itating ete ‘hoc He haw kt uw asus the follwing Prodction hole (a 1 he consis ony his priate et ets he ml ave ed of 14 ale forthe hie fet mie a if Be me open oe ‘haga toga he wil stp Bore ths rt ios $5, ba ths fata cont of $I the mara damage to rat tpromor: Hence hn net pain Sie be es 41 een an 83 Icon (lor damages bya welh anes nt pn of ST stern ‘ial adds more tot (5) than to revene (83) and wil be ere. ain damage ie dows no nts te be the head 12 fo frame they wll fer up Yo SH i he wll ot ad tite ina Scene forges ths veep y sng the thee sl (ch hans ony $3 the Govt otha sal Co cnt are foregone serine) Tic manner a which hoses ait ot et {he relative private arpnal cost of pectin of eaten antut his prcedre obvious as 0 the eet eres the rents hi wad ase the eae and grin fas ee ed bythe ‘Sime man the Cone toe thas ers that unde pvc compe {ion pve silent il ec {Te royesien thatthe conpoation of ett wll aoe ested ty the maner in hich the migra for damage scons ‘Henning Bur ish ge be La en pove Lo he mimpertant TE Mae cane the seer or acm he yr shoul ay Itetes a uve net. The sesgrnent of espns Toe damoges ssc can be ignored: asim That the sae fet {Bows and al pis obvious hat hs dterninaion cat Ain wendependet oth signer. ther if wil be poliale ose Tra cattle and gain and then ene” ill pay” the amount ‘ecsay to mnie the um of tps of th (no mise what he [fp sarangemen o il be wnprofabe ad one ofthe pods sitoortersied” cen ee son i ey ipa cans ae the pes Such fee re claly presen he Tepe ‘enly chops he new hole fit has sol the we le of ahs Nos Fst." eft somes fom the unespetaess of he een of site and us icme ete are ot ly 10 Be Inport legal roles hae long been unchnged preston mst be sue, he uke by an important at whens cory spews sme om ater! Roms, the ea ston Jovarane a compensation stern whereby the homers ay the Tae to inslmoke redaton desees op tthe own where the Imagine af some reac sal he uy ofthe marginal Bats {teins te ov amcton ye pone © cu of peng the pee topether, of seine damages. and con oni aay ntevention may he feb The sary etc sl fm ple ode the at of ee eon That scaly opti depen pon he teil of sme recto. {he nub of poten ofr apo the fact hatte te thay ase ccna sn ple wih entry etre ‘he fiferenceetwéon pve aad dl costs a fetiras have roi ee el frp cn sn ti I ‘Propet tot some’ We sal Gc th suet Im Chapter 3 The Discover of Externe ws 0, dog 9 ithe medium, Prof Pig where he oan the ttle meus Enieeom of examples nf extrac presented in he ome Wel. hee be snower ete ud he flows. hot 1 fe thon fom be stand erste Te examps om aol 1 THe ea fom Berard Shaw Te fle ane roe el po Movsall—onfetontely Iasi et weigh ie hardest fom aches a the Hk every owe ded theese inion research. Cra somone she (end fo the bes peli ing the ocho | "Wha como to shmot lf hese once that imately hey save nat the pede af women aye they are eto presen BY the naneconsmih of the mi. whether they he Hates Fevers piel cet fhe ees ‘One'ean deve nth olga essing etre. bared pom the aterm of ices The rerun esse not nroy med sey tai th hy enc hn {ake plse in esteraiin and therfore ma ep i ate ute or (eg) smoke damage But sly plist dove Pos Ad "Comes mie out we ok wp he maf part of any simple model that relies upon the time ur mney cost of {evel to the centro the ott epi and les. For example 1 We wil nd dip in wales aoa the by ar the major 2. We may find age area of depress tn vss nea he iy enter which wil et sero fing ne fons came ae fie high eam, poo honk nd 0 fot, 3 We wi fn ies td vans wc aes opr, ee things Fach of those sales of peaks repeats he fot of 4 hi ene extra tlc The proceore sly appoint to the pies of thet ped lve factors Cone the pattern ape payments of asked sts mes yt nt nay ie eal wc ‘tava of Fett antigen spec hon ipa invested, ape and capes tml sofort nef the bre higher for cumple, ners mac tetg own we may esate the ath ereatexemlies of that ene Extensis oe i ny det: poole who re afeed se ot arin fo tants sping she Ba the fsothe ete at reise in the piesa incomes ofthe afte Isolaing the Product of One Factor Xe aati cs of ui of prairie is nium Flr heer sesores wl i ln stab asd Can ths te done? Ont face is ems et and a conser mrmber pepe hve sid that sine wheat can be rested ns here mwah pnt it nd mn esp Hany vison ofthe pct etecn land and en airy. Let vale ProdctionCorficints. Let define he pion coe cnt of land a growing nt the amount fd Presa 10 BO fe bal of west fra amber sich as 1/4 act yo, Say {he pronesion uci of ators ht he 1/000 actor year. 0 That of tahoe 20 minutes or 1/010 man yea). Thee. proton utisen are mel ected names fort oupat ato. "The praiuion octets aren gover warble: there m0 iq gusty a ees np) ates prac thse ot Athen’ One cam ws es lanl shee more fee abr an sk Thor it te ses more marines. The phenenon of sistant “ogy shi Oe aan ene keen ‘Stn. sling gods, Alsi an be isle for sales see ecent Enns ct Bessel for fol more dae ‘aces cone bate for reps : ‘Wah wre pro coon it pose 10 write down 3 shed of opus coesponding to vnin mest of a Ove MP whee the quanite of the other inputs Have Been eld constant, We {meine agi roof tpt 3 the scense tal post Site by the ineese the quanety of A hee His LS ts of ri mmgina rdt then he naga conrbion of» wit of any int toahe tuk pect a seth emeuon the iy Pie patie egal product fo M13 = 8)" [A this point an caeioced tihe tm ete tno desis One mee ta sy rahe comply tats the separ he ‘onirton oft input has een achieved an a at Mont Fensoable men il cent thi conlsiom spay nce few toal~the mri pact that fens tt be men wea The ‘er desie stephan the arty of ejecta ate Ben made to ths procedure and awe acento wel ite sede a a na ety eo ow sal coo ye ‘The test erigue suerte thal the et pst of 1.5 oid by ing the Sa of 4 aay ea vt ote ete ae Ahatre being beldconant meant, oor example sarang i fi ha the ands bing work ite anc i wes of ho This is ite te, Pet the contin of the ste spate othe incre of prot ssl a be alii. Untortnately,te Poof of ths Suerton ma be mathatcalt" “The second crue sete a ath the 3th eit of oy podoe only 1 uth previo unite of 4 pred ore, Inpeper to aprae tbe cont by the onthation sf ts es tmptant at Ths argue py ssn ter ta hs pei ‘ion content are not arisle that oe empresas Ing the enteric has mae mate M wo te pole to ave 5 en cpl nm dene lh han oly ep Frese wich Ge tne) Me toh ae mal pr tt But then abr bing ed inchs the th a Ie ecient than tht of i few rere. be eas Salt Pere he sa spend Hal fh time seman eng sd make ony hae rept in caecaws, Wher the sient ig ten ne che ih ke he sine Ivana contain for hs ee tat he coat pase she Irginal pesct of 3 en” me “the arial pk the Seth "is Heads ws toa Bae probs thee are many ways to grow heat even sine the sien ints. Th fares can low cao o cp team erties or aeseny he cam ce ca at te ‘Wc mth wl ease Hh tasty eile ees? Ba tecmique may hve fee mga pd for ech inp tnt concep ot inate Te upon the chao Pee "The economist answer co asume tht the eiepenee wll we the hat ecu hnown. nhc ete cg th ee He ges Prac wih thse pen te This of cure ssn ene {ano he Probie and inet ay tpt the bea how teni sts Ast PRODUCHION stk of lense lege is Stemi’ int a separate compa tonto hese ltr" prefer hy someone ee ce 6.49 {Deal problem and tw ly gradually stave the ile tcehoea knowtnige poss y dierent Se oan is, Pond ‘ecenetuly vole thee peace tve can quel sero With he RST ney stamp ised Production Corfe.‘ quesin of tbe pation cectns rods ha og sn eas The {tinea econo for example acme fat cape and Tor mee Tim's ne propovie at hop stat fo a vale Nepean te uape tm ths cs arg! pt cn ow 8 Romine dose af apt and hort not foreach spar Tres fet ppm, nena el eins of ration 199 mnt enemies Wah pect Sree ej er hs on ea fed fon Sets constant socal spat cut and Hear peo sare ucton monly one of at and of ind uf fat teal numeral neni Moor whet es) (1 eajete) to {hac everyinpovint poadscton cvcet Bat vata since 125, ony hese vartato tat esced fhe eee of chologien esees Shen Gueston and they do no ry seat aes, Tethapnajoy of seme catia majority i i wuld bea without my wie beheve tat almost ll prt etic Se sre hey eh hon ain en, Oe ht RGaietmges ae hn to fd. Past fr exams hat on 0 Sachi eat can be homered cut of a0 ne of gl. 39 He (Mei et preston tpl i fe wn ed But stay Sra may ner i ws eerie a are het tne mee Sb eee To The inch ithe id Sinn where Tor wos tapes, tee was ss ponding and oy Dé even uth” tc pe of aps eases eres, Mercer ge tat eth ufo: m possible cate of Bead Francis sosiiente cn he iene n tute and 3 rexure a ti more portant fas for Helvig tat the pration ct cient te tv ihn se amant of expesence EBs ths 0 be SeWelcmerse tha nnest ase more fein when ete reson Froaram eds thf they ay We sere ha sme ns 9 Fade se ste ior tan ters on mechanics alee posi, the atent raw mater or employ ierent avert, med. isp a hued other forms of subttation ome int fr amt. We even have nme forma nisi findings tis ef, hao the stole they comsitute vey tiny aad realy recent pat the ‘Silence for sara. ven if 3 paduton coe ae vaisle— an his of cotse one can karte ermine the auction. aw saab Ta Technical cctiient ranges oly hrewsen 1/18 ad 1/12 ry the INerage techincal etisest opens per stan may be Simpler fr ranyqustons to sme fed Tom it sn en ‘telat dhe connibton of oe np fo te pot Not by mga {nuts for then when ese opt yn the rs tes flyin propston i There are wed amet se pate Ten with ily fed proportions owes psi te tcsmine the cairn of each ipl entaly by nego Aieren indice The Ini hs appre) he pended hy Imcans of the analyse of ery simple conor Sop tha hie ono hee te D0 sen ad 10,90) ares of la ech omen neous There ne oa te pole pty, each pine hy» lees Enmination fen ad a, wth et ation pie san +5 ces prods 1.10 base 1 ma +200 ars pres L000 asl of what 1 the economy concentrated on re, sf he land wal not He em lve it atconenrt om whe al the men weal yt be chon Suppose ia at tha ss has her sting for 33s bs eat 83 and thse costa prices ate gen by the esr marke Then i nly ie repre, i weal have an aapopte abe of farms" 1000 tute 82 "sn 0. IF ene sa wets to ‘ea. bis proact woul be 1.08) basics 8, ey SN. ad he Feducion i he ale oe wo be Ln > $2 20050 Income wou ee $1.00, Let ths si continue tl 03.3 te ae "sing wheat on (83.3 > 20) ~ 7 aren am 6067 a {ehainig 3.38 ere deste toes Now ine re an sls fm fice to wheat, be wills pode prac of $3009 bt the A acer be aque wl Kad 1 a eduction of rice arma nh pet Sh So me aren elit with fullenpoytet, with wets of {he lar fore oe ce farm Nao etme 32D I T50acres wer to he nde to the cro ay By wing YP oe fol crue ane re man etal sf 0 whe ad nd ome frou se SL: Hence thes ht wel be forte TSO ates and the phet en Se per sre seth oer han} tore men wer to with from wert, fens ae wa fare eps’ and its higher sed $00) would pray ket declineof sett $24, am ational nce mol cine by 85.000 Hence nar sess ae worth B5.00073 $8 “Tes ilk pres tepcen arma poets inthe proper sense! icy mettre the vale of output Tcegne heh tit ot 2 ‘source tri fm nye The eaten we ane he set nd these rots tt heifer pots in which he esas te {hed fr ilerent prt lon ufo ifr the combats teach This metho of ting procs ig imately elated to 8 mata wena ne pani a he akadie pies of al meted ete inplist aerate este apt Recommended Readings ssc Patan hen Co” asf se i Rm sn mPa Problems Wirt tar xine be ° bios m os, ies eu nae ‘Seca ‘Cone mugPRODUCTION: DIMINISHING RETURNS ‘tage ime the sa st of “technol” posites pen to any penis proce fay comimdyThse posable Testes are Erommont aele ieshsspest™ witht quote marks and we shall mtr pte wh them thee rk alse min sth he et conresing cise ane at apr Warchoase {nt ce ground tospecaon sta gery re como mre han The veel detec te aye of onting cl, puting te as pat ragating io ee Mrvtes ne he conyiag of inven that ne ot age or they ar expense) orto sal {hel be fs) the ning sf worker of descriptions aa tO tiem to werk we brroming soney and coling eb, akering hd yunceing wt the Fees Trade Commit, Stet changes in Sonstmer demonde snd waking ct tae eure, ‘The plan pose ‘ita eter densis i ae f pss ‘iment a kamen aay of preucng pods —asing pred tion im tnt sone to ince nthe of onganiing coo tay" eteed asthe Snatef hea Hs vey conti ‘any mst tht ne wil ie hace hey ae bolt’ they 9c [funk a re fg deste Shey el eel grub ee Ingram ofa pets than ster Ren ea conta abo py mos tata he anke uamguneny as super and Interest fate me Ichi. pres ore aor wthch's Inve eit wil depend on the pes of achinery ad shor. This inentry of fromletge gms over lime as ew scones ‘remade We sl avert sone Wed en in she sce of new dace the state of the ans is an Ecoais all publskedhaewledge aed the wae empirical eugene ‘posing onl a me's nd wrens hae smi inden iirvariy: icon the meth of mang cpt om» ae ‘mal sale) and alan of collcg delquent arson sal eat ing employes sn wat ot The tender shuld therefore be stably iss 4 een ha ‘concise discover overs lw reaing he uate of apts the quality of stpat for any pdtv pres The discret ht Taw. to" Malas of ppl fe) and Edward Wes! (whe Scat 1 amon 11, br oe ther as te turns out hat mach more canbe sd aout the seaionsin of ‘upto one to several np than abot thereto eat 0 I opts so Ne hein ih is ease Thi reltoneip the Ia Aisimshing fetus answers the quesion: im what peption Sho the ano inpats be one Diminishing Returns The tw of diminishing tans The lw ent tule, hat am asertion abo the lwo AS such, iemose he sereeed im a patil way “ese the pal ie that recy fling Hes ave comtant slain does kl ‘he aling body is 4 Wh of cld mse Im or cn he cons 1. That there be sume inputs whose quantities are Bet insti Inputs vay wc hve te eaten of contigs of sale dese the near ehauer, 2. The ne i echnohgcal_hnowlge {apt output posses ne ll moe st ‘ony, an tuna ito ber spp Son newly aah trhngue meth oda te mae ha ‘hd when ma wan added tn en th en cman Te Tie proportions i which apts can eles combine ae a sear ster words the cess of etc te vanah130 Prosuetion: Di ‘change the form ofthe constant factors. And normally be eam mk thie change If vem time: sooner or Inter the particular factor hice to be rplaeed an they at then be repel by mare appr priate teonetant” factors, Te the xed productive fartor nee not be changed in fren whe the quantity ofthe variable productive fasts ix changed, the fe rotor i alle saptable. Adaptility is eomplete whee the fr of the constant factors i sich that, whatever the quantity of th Variable factors the masimum output with the known technolo ies) in achieer "The ifr betwoon the products obtainable with partial an complete aiapéability ie Mutrated in Figure 7-2, The extreme tse of ter aaotaiity, maybe noted, would ering with fae Proportions whee the eonstant feetor wae erally inespable « Facing use with more or lees than a erteal quantity ofthe varia fetor nd in this cae the total product “earee” would sep! te pint, We hall ler anv that the prductive service which we arb trary hold constant in onder to exhibit sieinishing marginal furs i often setually fixed for the entepmeneae Inthe short ur "Then he cannot make any magia! transformation of the eonstn rvdutive fator ie requ ine to wear ont such factors (the tte durable) oF 0 rebel them. Since the fn will neverthele trully have furtating out even inthe short run, the etrep ter wll rok to have a fexible protuetieeeyetom—one which 9 trates with tolerable efcinry aver n eonserable range of ont Thie Heibilty ean usally be achieved (at mene for examin ts pousibe to design an oil efiners 20 enn vary substantial, the proportions in which sone, fuel oil, and ther poduts ‘blaine fron even erudeo, In term of our diagram, the fei plane wil have lower outst nt Xe Boca, i versity ea Pensive, a larger quantity of the constant foto is ded, bt th arin prot wil tot fal so eapidiy when the variate prodor tive service is inerome ‘The Proof of the Law The ln of diminishing returns i as we have auld, an empiri senoraliation. ot deduction from the laws of matter, Ap emi fal nae (ae we eames from the law of demand, 24) rae Diminishing Retvrns ra Prout Curve Frode Cure Pri Adaptaiity Figure 1-2 te proved by prudusng instances of ite operston, This is not to say that ouch inet empirical evidence i eelevant: in particular the lar wa instintely averpte by eeoromnt lem as fist ronan simply heestse it scrnied so elarly operative in agricul ture. We could now pratiee a wart nun fet do give two samples in Figure 78 and Table 7-8: A method J TAMLY. Botte” The InaFewest 1 peer wi ek hn he so sae cer tnpot is being tac ms ge a quany ato reduce the evel of uta, Fon bor ie, he wl yt heen of he soo og ah vei land se ews athe bgianng ofthe aco stage. This inter colon was sprvac sonia dye, when lad lst fre te eohts eve property lavish int une oa eave to Inte teste the fetuentfompante of Prope vsts bo ete cova to te marines wilson of ore expense land 9 rome th mans of appre techno fo tappeopate Apa eumper weve asd hat ie ai fab ot suc a ail ane th a ‘eyo a hak stall, Nor i¢ necessary. Suppse we apply 2 variable want of feist pen quanier of sd and abr no eri Ange hme pet wi eens bee othe al pdt Tang Beth er Na ore hepine some distance above the eign, An exam is ben in Tables ‘We have so far asumed abo that there isa intial sage of ‘ncresing marginal sf labor and thi so posi ut unnce ey, Maral prodct may begin to nish withthe rst ons of the ‘arable serie thie al stated Tale 8, tho the size | {ni stage of erating marginal reer has mol een dverioked The conver al pole the ital tage of reese mrgtal rowictray Fe so fad thatthe dma forthe rue pe ‘ing ell constant dasbl it wea be woneevey even cine to employ i wth» ezatve marginal prodect Suppose we ned un 3 ruc, so 1/0 61 13) amt the sari sence wih 1974 TOU SIM) ate othe conan see wil kl 1/80" €D C= 1) tuts of product. Hence by throwing way (10 = 217) 783 aso the comsant sei we cia sive (21-3) G7 un a the varie ‘eric ail oheuning TS wets of product If he td ec divine the enteprencir nl nt epost 3 ron of cen arg reins tothe vapable sence (ad uf nogatve maa aes to the Sontag ae tage so poopie tom sy tht they stopped teting a hook esse hey Fescted the point of iishing rtm Hs pee to Fah asa Pepolar usage, but ne ahi Test moice Inn sat tagswage fe nonsecuns erence eH de 4 ining ta otnargl rene Oe Sa nde stop reading ok ee is ‘roi umd tn fs mse Ft comoaty the pes mane that the oa (arial plate rim tnt sent to fs the ine fr farther cing Feumend the fring ngage, excl wih ede” ams 1 ‘Megpe reading the ok Pesce sx aril sty pe minute hd ‘tive bb the marina niyo altesnate wes fe, nog Sep Ie tngge en oy crest ba hs he ars tf sth hg the onseaton 6 ey, ‘Tie Role of Adaptabiiy The law of ining ears roger that re hkl constant the gant of one ton re) pructie factors we war the ay of {efor we re lynne sos rl seme th costoey sien {atthe yoann Tor the constant peace factory be ue Chinen neva te wom of men bug ae we never Inthe nner apd type ods conta pvteay psi ad Tivef couse sally yell shavly dining reuse, Poche The los appa cau n men ger sumer wl Have o resort {one petive meth f wort etl sharing hte deren sem a whi 4 factor may Be ed est is cope quant (or vais) am be be enstant: We can el the Fre hag totes S200 say fat say tho fray 0 at they ae mot amps to watever ny ib ae emp. ih Tener them nei Teor and tee laure te th mre men, we ase Inve ht les cata wos Or conerety ne are examining the muri pty nb, we um fe fener bat able were {ese aye grr py with eee ead ore ut es Sle This trond me sehen ne ane sted the bho of tm enepencur wh eck 19 Irate he cp ee pv rss Hea in fe change the {han ofthe cea Face, At normaly hen make ths ha {Shen sullen tine: sooner oer the parle fate nod Be ‘Spica ad they cn then be rpc hy mee ape “conta ihc ul pradtie fcr mt noe cand info whe he qn the sable prod face caged der seve ie ps a ei fhe a he 8 ‘tyr apt may hee, meld are wth eed rept whee ie craton factor waa incahy incapable of eng iad th more oes than satel quali ofthe vara ft the constant facie vibe te pact “curve wll be» ght hi om the We sl late ange tha the reste service hat we aie hot constant sn rd wo exhib nahing marginal rors ‘tally ed for the eneeeenee i the srt am The he cnn ke Sry magia tansoraaton ofthe Gand” perdutve eto = ees te ter et sch Tactrs they are ral) or to seul them Since the wll erties sly hve a etating tpt ven the short run, th enepreneur wil to have 4 fee facie "sstcm-one iba operate mith flee ticncy ver» comedic Fane of ep Ths Meity ean sally he ceed [a 8 see “compe siepnable tedep soo ney aol can vy saben {he proportions in which gine, fl ian her products ne sthalng fom given ct oe ene of ur sagan he ue panwallhavea lower ont ty Bs, vrai epee, as {ur te Eomont factor hes tthe mara pet ll eras apaly when te vale pode seve nese. om The Proof ofthe Law “The law of dining stn i we ie sm, a np geer inn ot adden rom he ef ater. A ei a as me Kenai rom he tw if dona, p23} cate prod WY prods tonlnnses of peat, stgh ce pet by i contrary Cece Thi em sy tht sh eter eee eee in'porain, te law tat imotately cesta by ems whe at pape ony am ed yore it cultare We cad mm proces wt mer firsts a {to gue two samples 9 Figwe 3 and Takk 837A uted ot Testing the iw tat epecilyreleant To cape analysis wl Be prov inter in the capt ‘Aye mbes of tempts hive ss made te prove the wy ses om ees saa he ts pr th whet Thc word conker ine erp pee he this saproe weave ncesing margin! prc a te ae 17 | {Eb a pn hn 70/0 wate vate es 112 ais of on 1 eres 1S, 1 nit of on res ils 7, Acco thy ening te gti of dw ae he eee eit of Fo 1/100 eres ite 2025 el eta eee Since 1/100 of amare isl a ery tg Rowers J his onceister tnt we ate dng vey wll by ecg the qunty of nd 1 Saerestna lous $2 agar laches Theres should no spies tal however ieee constant returns to Sale 0 ren ey Input fy pesca sth proc hy Kp andere ae Increvning cape rer oe fact, here mst be netive mart ‘uns to the ater so relight stall Intense the tal nde (p15) Bat onto fo te pot thee Teno as fo ‘ing on thre must he const fetes tose os we Sl cen he ot chupter Ste poe! inosine ae paso how the fea work on ee ave a abit Shor-Run Cost Curves In ode te the rg product ofa productive servic, Me have edhe games he irc Te pox cme ain any comiipation factors snyene np oF Bp a pu) RUM he vai he emu en bet constant sta hie however if sly the ease tal the erect con sy tetra snc pte meh more eas td ely han the quuntcs a thers Te propriety cn ary mtn 2 fee {hy the names of emp he hire she ate of say of ‘rater, the numberof hue be persies the pla. Te may rege {Necks oF month howe to hire specie) excites eto hn Spend aches ich may hae to be ol orden oe 0 ene {Fetasny bung the pronto of ret ste cm ncesse quickly {he nerf (ae) sec ad thesis of ods, bu tw ie longer eras the sone Te ptr oa let Eeerating ‘pany cat expand uy hs ee cba regs Several eas {orabun an abba pert Thi ove lngeabe then popietor say hat he can auch ty sore sel see fat ees seven ont eta a ne apn malin est agp Ace ih pice ean bay Same machine fm soother crmpany ad have insted 34 isn veryfghont one ean baves new machine un 2 nth Fyneaing atom the clk, When we aay tats he shart van we Tipu recy vale me wean Tal thee guhaity can he ved ‘ies rere iy, hen ey a the Tipu ie mo ely vatle we mean hat ee qves eam De ae ‘im the pen ne une wn meck, 5 month oF 4 yen-mony at 8 ‘hmderabe change ince price He Wy to sell the speciale Staten Con Ces “ snacking a i slr wie yo bas mee i Sharpy for eal dive Play and erably te mato: of gre. The plans we of loan in fe mend inate ot hag ps tnay rete Ive yas nd ited Gee vdeo iy the fennat tory, conamsts dfn’ the she a2 sieon heh the eneprencr fat dst tay ce Bt a of Mr pt ‘The thort run dos ot ny veer To 4 pert of eck :Mogh when sem wise o ornate at» pen ate er on Sor time wit sary a apts: Clay thee re many shor ws and the umer cect variate produce sees ret the eid ome engine "Te ac at sch afm expands is eof “ke tors depends oto on te tof rp Coange Dt 80 oF hw lg utp SMpoted to am atatih ortow te Sapper ar psn hd {BRows) appr ae of proton oH aso uit pet sti re dermnato fhe ght aan at eaten in he Sct chapter) now 190 ants the Geet utp ae tot fet Pec wi meyer pa sex ‘icution, which wf pohly be fied hy am wir ele of tie supplied yy voning te far piiy Sprnvetery hangs ingore no sanaton im pln! ar nil Re mae ‘Paks tmtaon ong inenpcacd abe enpeay ina, en * permanent change in up Wicnesunexpece wi fra the be ‘td pani tvugh changin the seaman” pce teres “cet ce appropri tempos cana aa the shorcrun mari cot We may prove the primacy a marginal cost ftom ta principe Te cost of ny acon eh ances 1 tn ize foregone aerate set defecate at me be ‘hotline he a eto or py) set Sinton herded quanti thie stanton, tee em {Srogone alternate vcr of hepa wi cae eporny aid ‘eonyfrogne srt then ean oN on seme units of variable serves. a “The deiton ef marginal eos is Sine the increas nwt cost sea 10 the inzease the number of nts of vale sees ties thei pie (wb ens te fe "ASRS ip i an a an ayerer compotion), me may rerite hie dein Sine the rio the ight te iol of he marginal redo, me rif vail serves ene mil con vain eres to marginal pdt andthe sof inching mara prt eqatalent (er competion he inw cresting maga ot For renunt atde ol fear dove srt, iis conventional 10 dating» comiderabie varity of short-run est cues fo the compentne Frm they may he tustratd withthe amet in Table 4, hh Fase upen the production schate Table ps fhe stemtion horus ft asa some ct ant wie the ost see {re dcintone ofthe vous oss ae 1, Tone cost = quant ofthe Hk protien te 2. Tal varia coat = quantity of the variable productive service Total coo = tll ie cot pls fa vail cost Navin on = ineresse ttl coat aed Ry the eee In ete Ho os = ttl ed ent diddy ont ‘Rvrae vat ot ttl wrth cot did yeu Aiea cg lit oes a = a "helt our cures ae rtd in igure Bo ‘We have sid that nly the. marginal cst curve i relevant 10 shore shang in ouput ee can po step aber as ha ly thar potion the mang sot carve hare average vale cst Fest To show is we ms fist thw thats compete il poate hve mgmt onic price. I eperatr a This cupat ‘Ecive jtts ete nine. The dem carve of competing frm ea heal ie: cut st malt ect he markt pice Tidne when te fn scree Opt Ry ome ni rene, 2 Cos hy the magia IE i eos poits wile llr unit incense opt A price exces marginal ot and pots wl sealer deve of tn pti ce seth mail cot? a iememeeheca‘We strat this ralenFigure 3, When he pice i the a expands tt opal fo tse il a8 Store To cn han ‘pu st comacts utero wa rede rece by RAIN more ‘tec to pln change the Sl etc ene ps sad hav chnge i Be pote sup teaser bd eave expat keene Ta pice fats ew Phe fn fs a erent ci, When pricey ae fr pert bere marginal con eas pico) Cahn otal vl ous es Nyro eee the fect {ky ine hy By ing ws the pai tempor (eal at Stetm cunt ar apropite oly to emp acts) Sreimncy. ence err i gate eine ape Fy We in the spy sone os copter ee ant wl ply seria pss Th sop ce te et a he Tins tapi cut cove he tou avrg ae ot ‘The Supicions Character of Average Costs Fou cost eves were pnt in Figure RA average Hea, ateage Sovabs erage, and muro sts Average Bac cot wholly Tereting tie th ot pert of tse) of the ted ators ded by ‘utp Ts alvaye a reangula peril. Since ed est sine: ‘lao utp ene Bip ty exam ett. Average sae cost Id ane eto detemine te muy ict pn he ‘Short Ra Cnt Canes us Averng coaster mote puri comic a deserves fale fut not neces hnde-wetnet The role pss BY ths cannot be taste to sly pu Spe king tery arsone pete rls on the sal average tet pice ‘ell shove average cacy well ow i were verge cto coarse Uncles inert st the gg rate on einen Supe fart that the proto loses wil ptt fora comderable me: We cn tha Thee wll be a tendency for average css to Few all where te gu price Tin woderstand hs sitiness of average cosy, toa why this competitive fen mates a unusaly igo sal ate offer investment for conse pri of tne The ane mt he tha No superior resources Gelang prs management ss css ae ‘paratively law, ot infer rearech ao ttc are comaraliey NEN But then thse soperorrexomces ate realy wort te the interior resources Tes than the salsa hil they te cad the ste ah eno are med yt fom (ym peo adh tae ‘rly to siting dwn he vl tebe sun, movements of tverage cnt, the fn soli pie wl be de termine by is expted earings, these ering te hi he wl fe foe more han the ook alo te use and i earings eho, sills for lve than bok wae the hye acs te ep te frm used no spelled resources the vation of apts mouhd he much mp, fr them hy dent the alent pst ‘asuce oul he tr con 1 the fir (and nda) Once special reeouees enter however thre sen valde for Eig it wbe i han cing sama eae ost po evaluations of ats wil ot aft marginal cost se the revaliations dom depend Upon the fens eatpu. Soppese the i ‘act the indy opt Bee ft tense dead 802 Seperaereanure (ay. n pice of land sald be cles intasvlyfor max pri Mth pt fected sme mies, {Csi have slags marl poet te lof smshing es See MP, in Figure #1) an sould be reed pan. But een Thesoul ie For the ve fan et setae y what bes ould fo awe may nse that nt al penta ove wi fo ese tat move itenve colivaton iz ena. Hence Me ast {Sloe mse saa wheter ori ae ais outa "Tae astal amit ft revsunten he enfortnatly slot ‘omplety unknown The sists of retest mse by acon fd nls veo the dns 9 provercing Het ons co Fistral incwned and ecrde, Hoel eos gous ated {ov liintecevtam meth eaptaiing pn nd tess ha = ‘ieee pares fo the alternative cost cone appepeiat 10 snunina pol beaver Terk of soi cos ese i aceon ing pac, as beea denn a pero so aio. The Proof of sng Short Run Marginal Casts We have pnd ot ht gin cost ares ive wit he matin foc ofthe vane facts the lw of Simshing eta pis That te short marginal cot cee has 2 pone spe. Te would pen hth nde te mar of pc it # dees ot "A sei of steal tes ne ou hts mia ost is pproninatcty sont wnlseapacity” i apace Capa 1 {hwy dened the tpt Stich maria ets bene ery Ieee The types! marginal cow cove ordng ths erste 8 That leated i Fgore £8, Cleary th erature densest su ‘diy af eta of dining return’ lat ap to pant ‘Riher han dee nt te sti ads ha ed oro stowtam marginal st” i pel te fe the tity of Ts cst ive endif magia cote are eetally conta up tothe ‘tpt at wh hey apy under competion a es capt (set thse manga et opal pe) le nes comstan a a pees Shove the consnt wi coe ad fro aU ower ies TM It gre the op othe varies ile at oes Dewey beta toner pcs under Py Where marginal cst diy tht Fan shen shot vanation i the catpat f the nd) es rere 86 ome shout lst excisey th sarin inthe tml of pants Ninf hrm have one plat each) ia petatn. Bot mata huis tne oe or xe sts thats tu of the sey station snout wl Some fr Mute the ote uta of ‘och pnt an frm ale fom fications inthe mame of “Sperling plants and rs ia'ths frm, the hyorhes tht shot-som sari cosa em stant canbe teed paint vealy share fate AS an ec onset the Amencan cnn spinning ity. “The cate of the i thay nay fe ened hy spire thes pany acne pe Sno the utput per pleat by "howe por active. spindle" Then the ‘eientge shang suit spinor fro oe gore eto he At wil be apponrtely elt Be som he percentage hanes Sve spiee sat et or spe Ths eaten a Beemsde by quarters fy Asst 1845 dh Sone 198, separa ee {he Soom tes (uae the induce has gow ss) and for he New gland state(s the ise has eon dling very shan Tih Wer may tate the serge he 8 gure changes Secon Pe Setting” 20 oes econo nen she sing mt Mah te sntty te meray ptf changes nut fhe roo “Etat tn heat praia (re hrs pr sind nt 15st number ace plate hte, spn). hin "Ruoury rtm map cae rng Taupe Ta inmost Recommended Readings ‘osnn ty "Cone Comes an Sipps Cues” Zi ir Maroon, 2 ety Sept Rn mo a aa Hs Problems eur tal eqn (p18. far apgucy nha en ner ce ey nop eae Noe Ma Moat ss ‘Tob dsive ss plan fei what me are eel et te fy Dov cn wen re a erPRODUCTION: RETURNS TO SCALE ‘such sweeping eteaiation as the lw of diminishing returns as tees fm or elt mate when a ee hea. We are nserdingy onsen fo comer aerate poms hating mene nse ton aes oy ee ‘Exctin nen fe sang te mae se elo er ios, Mthe Whar heresting. ecesng. ona retary nea we Sint nr tect npr drains he Proper Combination of opus et ws begin y asking hase question: sf we wish wo prdbce a 2 erin rain what proportion sal we ute the varios puts) TS Seon tot aneweed ety By the af nse tetas, fe {Rar ise tll ws only ow many te were seeded to prod 9 heh bowie gre that they nor om Se pamber of ees of land Eine tie nw eerie) how any aces were needed sen 4 Hed Iitr fones Tv ae any ferent cortinaions of tpt ht ll Melt the dese pu cacy the emp combination wil Inova he praca’ poi. he Proper Combi af apts ' he cheapest cominationdepes upon te ane prices of the ipa and fot the est cost combnnion i vn By thr sles thoes worth of any int shld as much prod at dlls? Sth of any ther input, For if» llr worth f apt han 2 ‘havo pdt of a) 3 uni, hat of Ban Suns thon wean fy $s of ring etn 1 By Sa mee of oat 3 alae worth oS oie of prot «Packet te Shah rect of 9 unit, ote margin prot of Thiele maybe sae a8 a eution of nim cost ‘marin roduc of A __ ginal product of ice of B goal rout of ¢ ice of forall inputs, no mater how may "hn he pe ote inp ress, hi le of rim cot Product) and ore ofthe oer put har dressing The aria esac tho. fack the sme appa fierce cove on ews, ith the obvious macaton thal now we shal cl ach coves ogoanis (sal gna) nd ne te soit gre a he coma {smi of one pel (4) by a smal runt (4), we recep Bees the magia product of A (= MP). Ts sf he manta steam amuont (Af) a poietic, 0 BAe, 38-0 (<0) Conesoning othe consumer get ne, hte wll be a ty line forthe entrepreneur Witha pen expenditure hy and xed pice otshe taney ruement imp ha 2 Mt, 7 MP, she form of oe contin fr eininum est The propston that iE be seo wn inet space fie sete Py ines, the ce of A eating tothe ne etsy carve 1 hb i necesanly angen to a-comen tngnnt (2 Nt the Rt of the orignal eu rete sen wl find many diferent wes of this clique, wich fener employed here te wen to asaya claineipbetneen {hres sarah itor resource to Sold geoeay. (Mee the thee arabe ew pues ouput with cane inference aes They wee tao commis awl) ‘Constant Returns to Seale: “The Simplest Case he spl possibilty wth respect wo econ of sa sat there sermon ety inp inresed st gen prepa, capt increned inf some, proportion, Then ifthe price of pectic Eee ve ot ae ye rs atop hey il a de campeon, ttl cts vary peopestaty th oa “Constant veins tose ae concn pon tery seme round it we do tg omen ao toe I wee Aad Bt pode Phy std nor 24 a08 38 proce 3P” Veta they sho ut that be empl tha here may be ehesper may of preducing 2? ‘Where panting nas dae by ha, may a be eet ke ny fm, whore t fn peoemad fats Wand ray ow be feast Eine hm speviaie in tae X ih gx in elcncy, Those ate "ction of fact me cannot st ho eer thy wil Beso will Sorte, pote thee examples seg that a ow we must Soe Inputs docu, tut a ot tee for he tasks of corn in npr exept ay snctace wo rap tha pe ctepies e ineicent We sal exami thse probaites of increasing ad Phe are uot fens 40 sal, abioely marginal sts wil be costnt forall ats when the inet rein Bee proportion. The IE poe mre np rege: Kpscen re of each 9p and since {nda of produce ators ar comsaa 1o cermpetve he tal es hs este sae sy ee Const tens a See: The Sn Cine Ms it a8 86 hy A pen, Hee sng and min ae ‘We have eid cont cares tha ett cnpee asin ofa inpas withthe long ronan hve tat het champ pat fhe inputs with the dr tn p40) Hence shores marginal st wl tn (because of diminishing res eve ih logon arial emt fest Contr Fe 82 Atop 3c ty {ch input ikl mnimum marginal (and sere) cnt AK Te Sly pt of he et el bn he mp cs ee, SM” (is ven tha shu agin cot ay be peter smal ‘an lng-ram magna eos depenting pon te vate op, Ate ei where te two ces nr, the api pe the lt (ted tacts) die hy ste pie sql toe maria pet the vatiale factor ide by pce At lye wait he map rit ofthe lan sath rol of tara ct {ass the loon mania sont Coto fe ot ul the Se ron Hse tof te enon a sha non ren though the long average and marginal et cores of the fm are hina nT ct ade cot eats ealty ach elon nee or the industry: AS we hall in Chaps Tena oc ce a yan he of Inputs ach secon to de inl compeitve ir), Neri feb even forth intr, sont returns o seal the very {Dooly ounpia nsec wer The Coby. Dough fonction neve Fis pest, Cis capital 1s labor and fs some constant This Frcton fomen yh costant returns To sal” amd thas an ima monet poston i eonone erate Is peut ct {ie tot dimmed salty a8 scion of tal production functions omen: Rath aed because) Wel drmshing feturns to each prdatnefator separately 2) ssp to tan, ‘ie ar ri ry 3 many vetgtin the pee Sate of eins eel toy nesting, a onan ears 3 “Swett smpiction: and (2) i has n rmakabe property of on F's Theorem. E's these on homogeneons factions the vgn ane ced this aoe ppt a coma res The {Sees smptone it sys that Ht ate anton ets sale {hen he nl pt eyo th sm fhe mara pd of he ros input ec meg hy the qamty fs pat Ths he ection function Pea neon) {ssc const ern ae otc nh sR Mh, CM, ave therm hse in he memati ks ar re ha mo hunitl yeaa as nase heaton Peet ee gis tte de So pnt cen eee sich Pa ga sv fo Be deci of Ameren mat smth evand areca tora mine aber rote sd wrayin aie, ‘Vave Retars Sele The Sings Cane 19 Increase tor to 20 a he prot st Pe 200200 = 0 7088 now € is increased 40 201, with bed 270, P= 21/4200 = 20 2055, Hence the marginal pout of 2007898 ~ 20 ~ 0.255, and hat ‘of capital 2002098 ~ 300 12895 The sm of marginal pots 200 039) + (201 1240) = 19950, ‘hich i approximately what Esler’ tener ast, The sl dis “crepancy in rodc tes berate we ane Bate eese nthe put ihe theorem als recy aly ferns chan sles theorem entered eronoms in der oder tr ‘oh productive fact pad at the ate i arg prot the [pms Tote faetn l exsety egal ol psc pet {Sas received wath coaderable hoa: Pager remaedtht "ue fe fea pedet eae, si the ance sage and ttn Iemopencros func alls there savant" The moet Philip Wicked by mae, abandoned the argument, ut the spy tnd tuapestlty of the bomngenoos netons have vere 2 ‘Spl om reals a they ee inert popula no so Variable Returns to Seale Pvases such ax econo asl padi fey the wi Ins ket that a am entre expand clef operation. wl We ale to eedace average outs Popular hee ane self eg conoid ere they re erp ange Lye bse shat trove eet or amano tan er diss ae wae tan Fermeety and that ricer hove fallen (on por ti ie se than’ comprehrnie pce ines) ‘Thee ceeraton recor, Du the passage tine ale ws fechas advances take Pac the llecte of see of apernsie and cchalogcl ance em ‘spurte Retr ce ke mtg eur) oer te ee InP of output teaine wo sputa wh he "tte the a een, Increasing tans to scale ane when» outings a ies less dha doubling a very ipa Te ates net tte 1. There may he we vavoidale eres capsiy some ints. tala hae ena or sien tale bur sin haeilo tas unmet in he lng they ean Bel or ‘rom ot a bene do mare he wo ieesing ear 2 Miny inputs tone shesper ken pcb n lper sae There a qonmity cunts botun eoonms i ge ans tps Ofch suena per anit apc he ger Atm ape order fe Tate 91). 2. More geieed pres hte efomed by en machines) Inert powsble athe sel of pertion nse he an ck ‘tcome ne exper ona smaller geo st te chin ea Pe ‘cal purpose 4 The ata awe of large nubs give ie to eran eomaes (focal For ecample, he wenn of Brn need nt iene froportion tite sale becane Gre i prener aby Ih the atop hehe of larger number fears I ahese Frese sana, he ngs apna cost cure of the fy have tegtne slope™there lhe xian Sale. An flaatie Tongren mara cost cre and ever ssh maria fist cunes ae pen Figure 92 eich shorn eure eects 2 “Eten smart of fae plant” The correspaing average est eres Shea given Figure 84 Thew avcrgs ess are excanely alten eis ean tw ma Mpa ‘orale Retest Sel Te Sie Case “9 ‘niverting or ther join ction "ecquent changes rll or. te company at diavanaps. The tnstes making se geen’ appre and shes ely ty Sn oy coy al yey a fe Hee ‘Ait tren ae seldom lipescale” mo noel wll be rien by move {han wo persona eho ci have 3 peers and il be {ile Sotto And ester neat deen annot Berle Selly commatese which fe the tea the glee of distal and Foil cies mst have ne esd, bo sme can vero the ‘iment tates mth te deta ht enti eins comes vans seal opcy Tmio ap acy ly wo Wt so et ee Yetinan apa concep een ate ea [FSi proper abe simu sable sue on feces ie nr mg ball ar oe dee ssn ih ong on bo a pate em Be nen Satine matin ssc opt nse oni for cea. {heuer a's a o sory han expe [ware face SeceEtSel ee tte fos sgh tv Gena antd Tone fot end. “Seine techy of proditon ses to nite 2 ty lee aon fea Fa cae rac fa ay th ht. si would appear to have ete nt on apt per muh [sly dos the charge cm he vane ype ea bee ‘he shutskaum poral em be shorten, path have operate ot msfcrafle pends af tee than TH potent of capac Wet the inns ne minor, nm the et anaphase {Isermnate mesomg he Sch ees re uncom Tesco clear that capacity thnk he efped im = ay tha kes sco af int smn cate ht het a col be ete ‘nia tally pve one Tw define ave ben prope: pues i 0) the output st shih shorn average cee are at 3 imma 2) tens tert a ong rom magic Steal The letnrion fe neesarly aia. there rs pers Sreameat fore lane deinen ee slant eneeprencra “stolons We may ste erence by Figure ‘ihe mimnom average eect Slits empty ik A: om the supine! delintniROB,Suppose a enters ni the lst represen Py the srt serpy con curve 84) wae epost fermoneniy3¢ On the minim cot eatin he oper Fed opacity ad this opps hat poe tie, he il is rae plant Bot he mil nt the pan ha he minim sera cot of 2) psc plan for put aoe lamer pl denied y SAC {nid anny have her cot or the dear eat, A desiion that lade ue fos a fr willngyoperte permanent exon Capacity sce wadeable? The dino fey i tee Te ley of shove and Tongan maria cnt es at have ti Bw then wl aye Ret sat he ng fp wl expand Fnpirial Measures of Foonomics of Seale When oe Iaks a the size distin of en compte fr fo Dial enc, oncompetine dts. one wlan ara dower Tha slg vary sie exist ome ie, We ay state te irey wh the operating rte of production of pete tees ‘ame 92 Asst aa lr foe Sl lar se ae as as 40 Dray the seal of prod, ‘Werobcre at there ia conerabe range fe fn at ay ‘one de. hs ink he eoplaned bythe fare of sme compares reve the ptm sie dt eee of pment he ie eed 0 prem orcomract the optus at She rage ose peste ae A ennsiderble pia of time (a och hinge pee nde, tah OoSeq Come tracked ry 1970 eae a table revel) This persistence ca be explana hy the at that hee “The optimum ef a. frm—we shall define. “esi” shorty depends pon the resources hat fon ves, Al fen 9 Indu dono ane Het sures Se have managers ah ate ‘ther bay thera iatrae Some ae cated were ar aay ‘heap eher, where lene power eltey cheap. Soc dence Tne srvd he dstebution f ems ye ma nse oe ‘id jets st it did nt change (abdom Nutty ie ene Sou ake several vad ferences Fs the fms vey site weal ‘on average be operating in 9 region of coma or se Lone un Imopinal costs—for smal ts were denne to ny sie these Tn woul expand and ae 9 ge shat ofthe indus utp ‘And some frm a asses old ave equ aria ces fecas i ny sie had wer mara costs tis ie woul he ore fwoftahe and fs would tend eter toma oth cera seo Totewe the indy Infact the Rs ition of a fie of opuinam ie shat ex tmnt ial adits competion wih brs of ee ie Ts test of eplialy i fins takes econ a te ay of the frm aot merely fo pre gore een tse fo inte nee ecology atthe proper fate cope wih changes th conse tse ‘Supt to changing ptprapcal markets he pdt eres, ad Proton 6 Sovon. A esto comparative inc hai not al ina wel ot {km us to pact te sural he mt cent seo am “am itive we of the sunver method ef sgn t0 dhe ‘Amenican peteum reine (Tae #3) Two trends wee outstanding lrg the vad ofthe 197 the fest telnet eting mee than Ut muon bare ede at per dy) st pound rie the wet ‘mole sizeof compan. a he sale compa (renin ethan ikon bares pr ta gate subtalar sare. Ths Was Period of extensive governmental peice an cup cont soit wat Recommended Readings rts Pr mi ta: Min $2.9, Ce oan Ath Te rate Copia, Lm: Nas, 36 Sv the Rn of Sa” om of fw a os. Problems ‘ute Each maine as cont of S10 pon $10 per it op fe isa ‘Sete a alo to tal ie 1 30,30 Fer the fi fanaa, ce P= TOM hg = 2 = 1/4005 IPA an en ys i Cf sme he os "ho mse epee opty 2 ra whos. mM. ToCHAPTER 10 ADDITIONAL TOPICS IN PRODUCTION 6 PRODUCTION: RETURNS YO SEALE AND COSTSPaul A. Samuelson sis‘An equivalent gst prods is to conic nilrece uss led sos curves at represent teas af the pedals thavan be pice tt gen ttl oul We dapay ome nic rst {Oscbstitt ne podet fresher nthe endcton pessoal Son the tere chine for gen doesn of the oe a final css each pret ae hing! Under competion the cepts Fro heal ofthe pracy afi can een he dara a 8 sai ine: rece re pb Brn tn pies ae coast The fh Sil erate whee the noc line toh Cs angen oth hghest Drs rcpt ne at pnt C~ and this segue C0 egUDE Thre mr cursing posit of ating the average cont ‘oat ental pute I worth tong at eh hog mp eit ne everyday The costs that are common 1 several prada {ur achine ow marae sn pding several prt 3 vate who manage the proction ofthe enact) aren died Sino he pecan pregeston to hr urate sbi ests rapt these Shalom mst eatery for tee aire haa allocation tht ie more pers thames. Toe ny alloation of ctu Cons One put i atonal i ete Ihe St othe poh pce. fake fe shuld pe te pod i pose eat ll elt ame arial as sternal Beanies and ‘An eternal exon i. wane af ric ia ost a 6 evo {vl thee, One na sempre ir ha none rm te priser of inthe pe all the nde expe (he's a eternal Soon. Coney Hf ip cee 3 tbe Inst expan therein the Cs fr recente Sexe {Tsccoowy The etal actos sy ok ses cools of pre fon as ells pn pt per revo the prom of Uae “ngestion ins arott iy foe 9 rm se re each fo dele Speen quanly of pode Cost Curves for Inde Wade Ourpar Changes ‘The ost tres fm present in Chapters # ad 9 were const tribe assumption that tbe gn hs no lence on he pices ofthe {fete of prc set Under competion thief of esas (9 ‘Ssnniom he proper asamp Tt wheal he een competing ntsry monn ites dereave utp he aereatllet tr more inthe aio ofthe dasty th of the i ieee tothe soa curves tha te account of hepa ofthe sys ae 2 opt om np ces “The cet method oi deaing with hs epee of he cots of fone fim om te ef utp of the ny an eer cont Curve forthe fam foreach possle pic of pute series, For ‘Xomple in Figure 10 when he pe the poet D4 a the Stn the te 7 the pice of ete ay he 4 po Thelin gia on save Mf When the pose he pret OBRowe 12 sa he opt of he em OR, the price thee material my be $2 rate sl mei the indy base expanded snp a fhe manga “eat seo her comes Met ye pnetike Tod td ‘mater and Ibe the curve AF Then My ahd Mya he tp of cost ve derived sn peeveding capi an Af athe ype of cost ure tat ste into empiy sn many pone The dation etwsen the wo ‘Spe marginal Gout caren er ‘M03, the nina cot crve when th pies of priv “ying the rte of operation so mrp caste pe. et vs cll the ltr ype of eure marin et for inside ‘ange We argued ht arial con cue of ype AN, hve pote Slope emer competition both short ad meron Wie ete bargin cnt care for indie change wil i hve pve Slopes uae hen he inst expan the pie of pie sve tnt ete ces on mas ve aga Spe TE shuld he het i i ha ures of type My ish ight be called ail en for singe chan a he Saye ta the cutee cn indi move alone camo col he ae of ‘pat of the indy an ths the per of pte ees The type M cures dap the combines Sts he enepeneurs sles tf iam! oem fe ya Ihe nduney.ver mene creche Hs ses he {ope M curse are sath meth of desig te ne ay tf Dorie marginal co cues othe fom frspm Ta pe Brier of protic svi) fo they Pak Oot ie (eT ad 5.) ha ae lexan to eye hance Phe Fimeions ofthe Firm The number of process $9 which 3 rm is syed nts transformation ito fashed onmamer comme t indcteminy Iie. We sy. for example ding te mk ff ad the baking of Sra, we ny dstngi he retin fps te haeading of dea rhe Wing fn Te eto hw tte Tanetiome divided among? Wha deermine wheter ft sit he undertaken hy rmaacrrs ening By sel sais "Spar of the anne sin the thnks employed eters ne prepandd um a tpenetor i nod be exromy snes Hct ot the epg of hese bat pra tie ag of prea ‘tir lt a ge eed oe Sin me Econo othe mt es hen oe a bot " But technology i sty not peremptory: thet is fen wide sore foe wae in the aye productive pre ate erermd. The pbs {ook mea nt fan seldom des pen he Pe salam Ps The hoa Then aus here of Aa Sith comes oun rn Ihe dvozon of labors ited by the event the marker Soh feted out tht sl villages cold me per igh spec ‘Sceupations tat re ees ou bee nai = it tao Eo a fe ‘at ec ee mae den oe So ne The tn of ns ng se Ly epiism scant mar een acre ao mana eo ‘aera out sm ee Tego oe sie inthe neo lp hast Sn. The gains fom specialization operate in the sme manner in a Se pertrmod ona sent scale to perc met spear mth iui pera wings ping nt mao he fockagig of prt he salen of ination om spp mete ra pce he hing of tad Ii: rece techn probes ‘We may sate hi devekpment geometrically (Figure 10-3 Swpnose the Gem engages in thee proces posure Uipe ascmbing the profi (7) and sling Ine react (1 Foe test seach func i Adopt othe her gross and thatthe oma ech pecs fren othe fap she inal pric Teaver ct ach ‘action i shown fpuatay an the combine sete the werge ‘ists For example when une component is mae a sal ele i ftay fe anpvotan to coiysectired mock wl ab: when he Industry sows the vial wl eave making this oan on tsa sale ad tom wl posse in prodation ge feale"Mae en then buy a pce Oe erage ct al 0 Re 2 broken curves shown in Figae H3. Connery the re wll make ony Apart the process €13) set to ceasing Ce amy THE Temander irom indepenien rae “Ateata eapinaon of the dision of futons aman fms i fetwcen fem ate fee there ae cst ttacho sehing. ee ure shat the fin pane fll. When fm pis 2 fart afte need fr some proces core Yan Figure IS) ang Ens itera crediaton ae ft he hi epson fe pd tester will be the comparative cole of mrket enorination new wl than om that of the emite indus system. As the seomony growscomes pile 10 ctlsh a muck more complete tanspotation| SNe a comple of ype af aks and othr noi stony ‘Rising to spar sea sv elation ste tha a ta ih Specitzedpesonnel and soa These elertal sconce pep {Re decane reson tha the Iw cms eure dest Bd foe Sm ene economy it gh probe tha Te Arevican econo ‘Sos hfs pofctve wee aie. cr Producti Runs and Learning by Doing The tadiona laws of prafacton ae ere 10 the problem of Inaily continue proton the fa wil gow wheat hse ext [near soon tds Many produc desiont, hoexe oe vce selume open ofprosbton Fr example the (0 t Ito cpus sf hk or peice 20 panes of etl type In the eet fw st pv ie o supp at a Kee al rte) some {for two o five ene, The tabla ery can Re mod ds wih prction for Site to. for ts tory based npn continous, aaendng ows of Iesucve serves and ander he win ta mater of ot {ai snc the pote eacurces ate! he dows are durable Perisher cae they wl be replaced when necesay U0 the {arm iran pre for only 10 yer, however abd then be ase ‘deny mare efcent tows op the antral erty of he wily to inna only Sante os pct reo Re made, speciale ot ies durle acnery wl eed Thay Hf SO anit ae foe made {Cons fr cea the pring Bok: eace the pats have been Inne alina ops (oven miner per pra) eam be track at Istly sontant ala cont The oa cot non terest) ll fe approximately ovmesiton cost 4 mer of copies printing costs pe op. so the average cost wil be TS + ining so ey. hich deeaes asthe ater of copie pri icrenses, Thee ate Mens producers sa that pak offense of sempng es” ‘tur peozncn es by shat net Aro has Iaheedtearsing yong’ Hisar by engineer hat 3 he {uiaive numer of atamss (apne Px thot engin pre Sted ys lam toe, the amount of Tabor neccsay to pre oe he ps te Tae Asmat Resin ha 3| 3 see le fll nd inde fl ot a ty constant ae, Axa apoio, En aitames were roc, the au for ncexy To proce {he Nth arty propornal wo N Aro posts tte cle {elaonsip of fern y dong to estas psholl Bnd deat hear (718. teepetion subj to dim rele “is phenmeni as hs osm hy Arien Alcan it the Tei iste bythe te part of igure 1 where we tg = fate of praacton and (=) amelie prodaton ove the ene Noy of pron of the amity The rationsip of arial est > agaette vue as spa relevance tothe isan of pew cmenciee These nex come es fallin price more rapidly throug time than do the ces of fstablake gone ar he more ap al ee to the elie ge ing aing te not revesbie at once 8 twat, ced ty ath ate of 100 uns po Fredocon does ne sit woman I nual pre nd may comin taht downward slot Recommended Readings ‘Aca, A Co nd Ong in The Alin of anne Rees Pl ‘ge "The Rome laps of Leng by Ds Seon Gof. Th Po sor Li hy he Extent he Me™ ‘So Pal ma he ST Se fi see of Problems Let aco of posing ad # What i teil of 1D i af Bhan A = 3 ‘Saunton p= $31 0.7500 and ha these ae 10 os. The marist ‘ue he tel wen te poe he pacban of, me nthe oto fe ay (Pa Hh rn pvt yn no ain mah he dd prop ig ion 3h The und ore fr eabae Sane gason epee ‘el he oon fe xh Fl be posed? What RP aa he a's pen are ih Petite gs rr ot ee {A saci example af externa sama in Fn Fm of Were i focen darn theming ped ene SrEapoint at nt tom ha the Tenant Apply the Ce teen (Chascarrer ll THE GENERAL THEORY OF COMPETITIVE PRICES Everyone bao tar pres ae set by soppy and demand A mach ng fen he pi a fre piers of analysand ft them into ganeral ple the “The General Principle 1 Fach fmm be petit he ui tt Seams ot il quantal yer ish top sie en snub ie i pon ern ‘change anor the mae! pie wil chao. cnioa an Sonepat tp sch Gti ek ‘ein the indy thit lds i ara! prot doy in which he fo operating, ‘te lent. we ae jing the “appropriateness” of a enepecneu's ‘ui ae vny cana oceeton hn ut the spy ached of the nsty foe 8} re ae 1 industry demand curve. 0, i ofcourse a conventional negtine songau nd ths no futon in tls wl he pile yes fg capt sone fr. Seti of ny oc he pes eh tat arpa cst Suns pose oe for ca corner te tmesre the mente eon ieremet the comma de mand pce SPs tps sstement by ep coma tht arg wit thoy ells Sof The manga cos thebeats cu) the tence ncn pce 9 ‘Margit vit pe cacecded ial cs (nt wil shown to do Ter monopoly the Sommer woul gin by expan Pt: 4 ‘edict worth $2 lings hy sasing the lene valle aerating ros (= rina son) Convert Hagia eet exc pe ‘ier amd mre valuable protein sce fo pre Tt produc, Thess fetus pope of competion are the basi for aig competion as an Wea Bat 18 td Mea, ute ne fn “allison for derestng cst ids wo he discs sty. The SEEM thes tect of nce for grant, sd his tbo [Sunsattatoy toa pero, he my ace eal nly ht cpentne ‘ula Hh role ih catty detente The rover of coneumen chair (andof the gh to ae tht oe Shien to gin coat : cmpetion on eecisnn, No-one fever hat 2 destitute oly hd ‘Sars (income auton) or tata consume shou be alowed fed Foss to hi any omnes svergey).Vetin a soy we he ‘oleae neiecence inthe existing Hace baton ae “The Long and the Short Run Marginal cost is dened asthe increment in toa cot ved by the tnerement i mut with nicki sated. Hence we sl ane 36 ‘ny muri cont fra Ber iron of ouput ther st elvan {is rnarpnal cot le powered by the sonal wee eat mets oh ie apa mo ai ts ‘he sly of a new supetnten and sthhe fom wl sovaly handle stan Attn ep By sun ein fee td hy ng ime persiet changes n tpt. We call he short ron the ad Seri acts (plant) sid the fg rn the prin hin whi the Sie nd exeence plant andi foc exes fp ely ale oP Tpere i emi long rite pia in which the fm can wake any change wie ni pdt range ahh he te {haa the kgm arial os, esis thew of ingens sie mre wate wan hws fempeton fo eu urptal cn loa utp at Sella pce {iat far deer ot under competion pre would atest Indtnsy th create ia {equ giant cota Indy wide change uhh msrp fet sera he Piss ad the Endy 1. he spe of the mgm marginal cnt cue of cach am ar 2. The ics sheinms ener a fave the indus he Lang adhe Sh Roe ss “ps gm mn once he pre he ih fa ery tm exiting poten he sony. A her pf fees than ai fram ako cys hese the fens tamirity withthe ha techoogy isl he pice of Nach hat Sain ait 3am rom agra ements wl he foe tan the price tht woul strc tr from the hand dss tera te lrg ail ruremens ec fo the frm ee hiher pie ay be mec oat hacelr tems mie Cronin the coer Ber tndt,Reaut te ae iaeles Spine ihr sep The mire ah ¥ersity of existing re 30 ge. cate o ede on On if the Indore spc eens Seca indo ang) ef what ue on and omit thse riers to enty by new fs cudnt enraly pet moors Entrants be uerive wr pice eg The erpcal ence soe tha lea tage port of the ‘ue geety el ht The easing frm il pe ha futpat only ithe lanes marina ane exiting Tr nt ee Sppreciahiy with siya Thine ofan tere gps te fi changer cla a The Quicksilver Charter of Compete Industries Alege amount of goserimental eet det to asin basen Ing cenpetitve indies The ssinasce may hea pote ta 9 vay sme fie poernimental eric The len may a itm wage. of cmpuley inal safely deve Ulteed that the fms in the indy wil ep the gin or ear the So the esse eatin art This bt sly comet, Bt nly temporary ew belong: nd hr ts tei pe (2) of igo U1) sng ie prod at pce DP. a Ua is a om each my sons sift up 9 neta. The pce sil SC hy er armont han te tot he demand ot comptes Inne, sx panel (Marginal oes f 4B pr i of out le {Towel by Brow With pangs of ners wl eave the Indy Beease they ean earn amount ewes equal tothe inner marginal cot ohn nds Eventually the stun magia {utc Gnd th hem thee the inst shorten apy Sent Sit. the It ehh to ae pe to hg ron marl onthe contami tpt of plan il eto same eat re than Te, eene pce mil oe abe OT a the umber of rs {Soe THC hrs wigan be ig competitve te of ern. The aly o 9 subd completly syne, ‘iss ats hae hecorecan egien o he ems in a competent Tse et ay cure age: # Ben inn. durable sts who aerate tet have om sweep 8 ‘heyy presente he cntaci fhe aduty 1H ake vee Seas to bul new plat xa ais ra polis caling for inst pani’ nay pa song » ven thse enor) Zi fies wl ot be nee, howe if the developent are fly asic tthe tar aatepte inveten wi hve fallen appewinly by the tne it poe Sian ai expec tc nd ave wl have en toe ony 8 opie ae fern oe hen he “Thee is one group wha may rsp permanent gins o ses fom rice den 10 hp cr bre an sty: te ares oped {esurees They mil a hve aemnne mes forth rowenta felons will vay ety with Tadesty tp. Ths te poem teneeiares a 3 soby onan wil he omer lnc Ses he Permanent ses frm on celts willbe aden Is the Ouput of Decreasing Cost Indstres Optimal? arn est sami ries ang ail demand in ‘Rely pn ts er we acne Decreasing cot nds, bower poss apc problem ‘Conte he chee of omen nol Cote ech of 10%) ‘Mt rate apt en nes on 0 Tet ‘che for ech fm for indy ne ans by coco he {i's ens ach cng al 1 ems ae epaing ta eten Ths dene ct ny het the Pe ‘rage asthe iy cup eign The cot cares of ae fe Suef change ant away ee wp othe my gg ete om annais ip orsmas roy oF commrrrive mers cere eee ot semin compaie, a two single achat ae abo given in {Thee and 2 Tend iy i uit hee ng la foe sini change el he pce AU pee of S20, each of te {Mand teil rode so amt $298 och he proce 13 unite Pease nt the fn psn mare tthe fower price eaus arms have expanded the ips fe 111613 a as pam helo rnvand hit fee sets le kine fechas. “or cil arial oto 1300 its whe al ms aa is cots nly 8235 this the maria cst ol em resin ‘Shut to T2000! Devrevsng cs nds therefore operate a on Stnl'ap utp, The eset ofthe Geprtre fo scaly pina pil pend pon the rte of fall timp peso ete eer on the eset ofthe excel nomi Teg be, aa at heen pe ial hy syed set egos a 1 hen 2m tye mere of emmy sec to ng spp pie il Ievone he ulin ee Bets th le ore y the ‘Sher tm The times fe indo aie) pal, Bt we shall impli ana ding ony ing pc Le he py of he Quartet Tota Cat Maria Cost The ang the Shit Ro 16 “Te iy wl sider $1005 to be the marginal cost ofthe ntsc is purchases Jo motes price ut the conch i ae ictesing cot inate are mot to Inge The aleraie produto the apt mst be 18, whe 10100 tite are purchased by thd, the pt cul ot be ona ste pice ‘Theexra $8) tara cot (1.000% $0) se tent {crung tothe supers of the inp who ha presi ree ly Sin No prc foregone a4 wel of tht pie intete =i 9 leaner paren lily rom consumers of the prc oun the ina The difeence hetween the Inreasng nd dstenang et Insts i this the pe increases of opted not repent foregone ‘rodut (or erative cos) ad ate wae between ure oes Sn consumes whetes the pice decreases of spt topes fel nome inthe pst 6 gt le, An Exercise in Analysis The apparatus of competine pre they isthe sal of Me forthe economia he ser fe mach more often than any oer part of hs cmtedge, anti he hae spn wht of hs nce hte ‘erated thorough sonman of ie aprrsir cme ol owas iC frequen, hate mae content Reeth apart sales of tener pobiem the eects tection a pla han al “Ait indus, oth in he Unite Stes al eerste sen pve tance by pie ppot peers A gonenne geey ithe Commadiy Credit Corporation ou lente tstrmen) ed sina pes spe the pod sh ced econ thane a pert tcsent ne farmer she ae ale reer the fll moun othe ban) Th in ete porcine of Fret, wih the eg forthe tame faking ote tr pice rer shove the ppt level The pan pcs ate Shen the indoy hearings ha the ae a Teta in er Indies Hee the inital postion for n'frmand he tye ‘crating Ie the situation petal n ive Td () and Gh ah pi inset eat Fy aay ent mse batt ol dims purchases aed nase conser epee demand snl aah inctesse lm pode Fcip wil Be The Incree in consumer expendiores, OP, ~ OsPe Goverment Toas, (2, ~ 02),199TH GisemaL-roRY oF com PRICES he Ln am the Set Rae 1 fade sed prin cools wl hese the cota ray be “Inet outpa quar For india! fs more commen -becrse ‘tthe short Huctuatens fel cto mente change quo ihe ateag devotd othe doe ® The station ino sated Figure 1S, where Qy i he som ofthe ot fa ary Thane incre in govern take tre decreas ty). Tete mt ig to csumer: bt permet eapentiture fal 92." 0 Tet u asept whut sucson The lesaiy ef gin he re hes the incre incre ate thew Thi nce erst fe 8 7 fypisl farmer i g(P, =f) mur the anal cone growin he Lager gut (gn gd wih he aren Round hy yu AFC. fy ln Figure 1-1). Th objection gig ths need nim ine | | (beter for res of expense othe otrage of sme prime ec 1. Producers ae osing a unncsssly nge ampunt f acu Preauce the ute 7 "Marga costs ill mevitbty wary among eme—vning the plimum prope disse ca | 1» Pam inp dan) i controled, the substtation of other inputs ew | Silt tothe tntaton of aatierepmm Soin tht Inputs be ase such proportions thatthe mara pedi 7 Z fre propetoal 10 Ther tc one Hee ft ec, {ind ot enogh td, sl be ated for he ven outa 43 4 a; 2 Aparon o theoupl rncearysad ee hy oer : : ‘petal prac, Srge cnt sal hem 3. Teepnlsteabove mari ca een seeping ihe cenit of il nud) v0 cms mol pn bya ce of Pc » ” The is tw neon eset luc vae te hd ess tigen {Wc tu dnc a nappa comes fp tn cas paid of ie ay cp seu te gvermet ks wll © Snipa tai fea niga ssc UO Gay suming te ety te meer expen See nt hr ‘Fea ea ta nto pdtn change oa, — Wf eQinat oes osee cote sa se the nde sap are rye pe myth on nel ye? tose cle the eran sock neste mow apy. Poe io ta a ec : Uy there wil be somplans atthe growth of the povermmenal socks aa se re ayy eat NeTe same ineressein income sul he pve the aes by er 1. Out ots kl fe ma lily sal rae pies and fale ct bythe des aswunt Thee eemponent 2 a waste ‘Soul! e'shinmaeds the taher components of mabe woul Fe ‘ue: ol the ne all be 2 Fhezoeinment poate cv she pie Pt he market toatl he awed to bere ee the pe wei Tl toy ane TMI) Ts shoe wok ehmste the fst to cme fens of nate fut retin the thd and ae ste ould ise ‘Ease pie wa Bel mari cae Qa” how much sl the fran price e to Lap forme Inemes ons 3, Ft mee mace taster the wate de to dering matin ols ofuiernt rm mould e minster We soo tice tht his th pi, ain a al poles. ase wher ono os ming pou) quests. Fach py ples 2 ‘icc ince distribution mei for frets commer Witty Tor sscryne tru the ataon neeary to nace e pute The wun sytems wl enc amount mo poses gut Fit nt fant farmer The ota ystems most face exp the problem sf ding the eqs amen formers the sae pce atm tel 2) emo Al these tem nl se ger bene ‘fame tcbotogy pone dct ees Fal wh may e a facto te apes farm pret the dat snd pas Recommend Rents wiamn IL ema Problems fasts pals 3 eS fa cs Te Soar th se es Whar tee geyest he prac of rn src ed yt ey. Fone’) Rea he nen equim pice ‘ica eye mt ema ona 1 Stoner ee 9 go es pi 4 Mocs hyp mar al an ety os? ly ‘eiatnce To sony the roi, we same (ead pnt har 2 He het tein non ea ome ato ‘Sampled atone nek tra Heme, for wet ie eect si felon si cht np how any plant at be ge ere Men 3 st fave pi 0 plese), il eps aoe 6 ete al fs npr aes How cout the recs peta he al cin, be ier {Sri ede elo) Fh yo ed rye ein al a er pao See peace tay he Mate hae spin st pH nd et ty asiCHAPTER 12 THE THEORY OF MONOPOLY Monopuly Price‘uals marginal cost We ilstrate ths principle in Figure 12-1, where ‘uit wil he and pie “he coat and ne ot be the sme fap and demand conditions wee the same, we could meas thon of resources ha cults matt monopy fom Tigue 2 A le san recess fr race an of He pred ne ve they pode prac ht coneimers ale at AT sui ee expand i ant thd a ee wa [rove oegineceuere ani agpepte ince tthe tl ol hut delving eins would he achieved ui marginal ost sl Price The approninate tangle NTH messes therein cee that ‘ould be ace if exit ee oir oie compete ve Joseph A. Schumpeter (1ssi-1950)The Defisition of Monopoly: The Monopoly ‘Demand Curve The dean crs of a roopetit mas tae a agate spe: Ha an {the only prado somo and consumes play orm ‘lmand characters the Bm eam sil ote a thes pice: Only thereat leat one ber poucer of he ena comma OB [hy wil the fem demand cae be hz oer a snc ne Suits We draw the demant cores a taney and am spol ie'Ppure 12.2.1 the maropoly demand came the wanes can a weal et prices and bayer incomes are ld estan there Sree Mena em the instr. PotD the demand cave of ‘geyser hee pie nF Vea al moshing 2 fe hes than hls (We sal Arie inthe est chapter tat one Fim wi he wolf te pce at Po he ber to gots 2 omer ice: the holst aie nly if the ter Sm ts fice at 7) Hence we ead define a ronepl the frm fang a ‘EXeinwoury fling Soman curve By ext, tgs demand Sire hav hort cpont anda compottor's demand carve ‘nivel hstaona The spe af the monopoly domand carve wil ia generat depend spon how gh the sate forthe mons geo ae hee ‘anys thee ae The erase f any erm ted Ihe pewouming ower y the avait af oter prec hae ‘She ‘cues fr Hee memopoly Ean ane nthe theme of ae Te Monupty Desind Cone 21 8) te pin otf he dina em he thong of dg. Sse a ‘then sr eat eg +t aca oie is eo Sta pics such shat a etal appeared there wel be mato eat coe (ee equations repre he bie mp. 198 g 2 Tee tat Mt The same sole api eget Now et hee i 2 a a he Indi dean cae 34/8. WH A he pote em 3 ‘ee io cs th Ht ee oeCHAPTER THE ECONOMICS OF INFORMATION very ecmomi dston tos the poseson of sane knowl by the peron mating the dochon_ At f thnimune ee mart bo he ‘eaonsip etmeen go ale in one paseson an the pent hes of sea tty unc for onsunerss 2 peadacion ane or [rode I the gra no alrendy i poser ne ma nom here {ope snd st what price. Sirs one may med hn cng, fies, whch canbe much Ter than hing prea fst sian of ica Prine may cst M80, ba a print ei il De hk tal a muchthe silence the cot of Sing i anion Genel information (Rrowledge) maybe scqere chon fo ‘mus wilt ene ofall he qundra eqeaton noe mak that Seu wil ever need o sole Eserenced shops kno the ties id Prices ina particular matt tat shyt oe for resent han {Gate by thing ins. ftoraton om unites ons fen [rovaedieough warrants iter by the maker othe eat, Abe {ngs often am exterey etn! way of reaching many pie. We sal ein honcer th the mpi of pens Ending te ost pce ‘Searching foe the Lowest Price {tus sume tht ee ae loon for he lowe pris which se can bye proc or sence Ita) he parca me of tomes wih tf specie options o he painting bulking fon ome been speciation, We may proceed oct 5) fe pe a ake the foment th elle aed spl rch Or we may ech rss Usely or prices el we find oe that i accptble (or Be op the Search) th ical cuca sech Normally we shal te pe of search hat is moe figien Ife were soking ciel deg 8 Fring, we mou a, fect to sub pes hele» gen datenif we ue soqeni earch het dly i geting stsfctny ‘lina could he very cmH wear hing pasolin 8 nw town we fay sop athe fe ston whose pate ce eps the {into ping by ster atone with unsceptale pce mele ‘Wiicheverway we sere, el orm acy pe gene Lnowtedge ofthe daithn of pics we wil nar, Suppor ast pric leads to expat the price of plon ft get at Selfserace tation to ange rm (ay S13 0 S138 may. Te pe Spread can repre iperfstion® of knee uber oe the ‘ice changes from ine oie, anon ere se oy i Seles apa oer buyer abd ee cvs to would Ssiagle pce unatinaly emerge Or the pice spe my Be de a Sirens tn aint tte, such 3 Swemence of kta froeay. We sal pt sac diferences tn ibtes no Fixed Sample Soarch The, yer, who wishes 0 purchase ane unit of a comma, isn 2 sraret In ich tere ate many sles oq ved ita fe cae ht espa to sing pres Type shoo Type ts Type ttl 110 What isthe lowest pie «bape will ensanter ihe yeas a an sng the sles? 1 he sees oy one es, a iil snr oe ith 2. Whe searches evo sellers th ealclation goes as follows: 1 Onetith of the tie on theft sear he il ence each fi, On he seed search 1" If scarch 1 ded $120, furshs of the te er 2 wit $icld's lower ce, terapng SHOPS the epee rum pice A/S ona) tt 2) = B11,seach 1 sil $1.15. ih ofthe de sea 2 be fs pce ot S118 ur $120. Thee the ne he ‘ncoundrs Tower pice averaging, $1.08. The coped faininun price 2/415) 43/48) $10 cc Wawa ying 130 otto earch 2 he ins $110 or $108 so tc expt nin pce S110) 2ysquas) = $107 ‘Wah search Ving $1.5, one the tie he wl SUID a the ston serch, sot stra simanum pie i Hes ato Si S110 witht scare $1.06 with sears thatthe tabi cnt apron the ve stores with 2 sear), am it on be din S104 wth searches 1.039 with $s he crampl ites» general rues mining res (0 seach in thatch diol seach rece the cepted ni ‘ic by a smaller ut the returns sich are de si for the dem for iors Pree fm one mone sey tes the pny atk chase. ti {he we hve yt dace, where ic cer are wary tied ‘ver tang, we ca only ent he eapeced minima pe The {set minimum ew wary wth he ng fps an ith he lets ofthe range of pics alte number seachesp Tables 1) Sn 162 (note hi me away hep nerage poe at $1, The sara eu the sumker a snrcher ween Th tard retro Beh Gary S. Becker y1910-—Neto teed ee eel sone of serch the athe red of he res. The Iara ttuen it ab be afer the mse ag. pied te em ‘Get these ovditon ve nt tndependen search sexes, lets wth elaine igh prices il lie goin mares pro thy le he pe prs Hake exper onthe commu ger sarc wile gt Tike communtiy s bought frequent, saeh wil be ngs he eos of searing for aon rics wl consist of time, en transportation, nn sometiner paients for inti. I ay sa Ita to spet tu hosed te nebo atch ies, he level and time oss may ise per akltonal senrh, Tine shuld be fue, at feast as fist aponratin at te amount he pen ea fren per ovr so tnt the average ua worker inthe Und Sos Sul hao tof 38 pe ar yh te inde shopping pieswrae The cont wll wsaly seit ional archen! een) re off the tinal tent se om Te Hi te inal sng ett a the cst ee 8 si he to searcher ifthe pce range S10 and sone sche tie ce ange SI Sequential Searok | populates a east with ecm, to contin search ni “ncenpeted gun fom ashe serch tes than cont Ths pecere ‘samen fas il the fe sarplewareh) hat the bayer Row the Arion of pes is met Ba dest Hom the ke that ich ‘slr quotes oe Stross in cur vga xampp, 23), the baer fds pie of S118 om his tat sea een hat hs expected nm vie ers second search 1, to the exper ga fom ase rch ie 0.06.1 he ina pice na 110, te expected ea sry $003 Sod i the drawing wae SLO4, tle epaced gin 800 The ber Should terminate search when the espe aia fo ge re ch ‘xen oat If the ow pr ech 30.0% peso fay one tt Sou mck tc uotton i he ew SUS theft ch bat termite serch and pay $110 oe $1.08 he dow these pcs the fat serch A pera busing wo bite shoul engage sco sear A he dew 1m the ft seh IF the cot of seh ie ndependent of he ince of eon aie in siecle i seh ose a te twa te ma arponent of tach ad the tne persons ke Besa a he Imai at bis ae of ering, so me rly expos ech for 9 ten mrt te ci the ran’ ay Ae the seach z SSR Maman 2 Mn “Sh nase Ti, ameal buses ol Fst oie pret iafrnin, the dpe vcs appro seu hwo got each sear cat ‘rdshing th seller wre he sane Te ct deg wath eller Sl soma anes pas or moter erent este Cor hile ic mny Bet end i he cer als supp her related enis, (Market Price Distebutions We hive accept the eens of gen pie distiation whose Chace chown Ur bayrs ante how Unda ers ead esc to his GsbstnTnceran meet th may sles hers Gdomesie scr, for ecm). th sds the met wall com {naval who take the Osbtin of sing shag pices Bivem ad ther responses ll alaace the dbs. With re Eton sti ret ete eth ser hxc many buyers the sles Si oem werake the pov fro Wy eg, MS in hd mre spay an demon contons never changed, ce tu expect ssviy empl ingerationfoemerg Keo isige mold never ove see an thesore each ac of pret Ssarch wooly a pepe veo, mothe proc terest at) {Gout a such, wot eth anual mart tof sear Hence ‘Sts ere wea fete he raced SD paren i the ket te ‘tiniest were tO ptcent Iifac nawtdge ses abslete at rte depesing ps the rat of the market andthe entity of the Payers seers Ane! Pre ate moet wlth ess abe rap and demand cote 20 Free Ratan move if spine acd bythe wen (gra. {ort crop) or by rapa tcl hangs (emt) by lovey Fue mucrtainice Fach ake conde te sae the serge Grunt of information poses by hdl haere sees al be ie ihe ener ve a en asl freyonty For expe, pres ‘Teor houses ns of detinng commute ip Nee Fg wil fee dipersed thon the af sar runt the opal rn ‘Sth isthe mot dist metho of soy infomation abo rice bur seen a nice met, At her mia fine catligice mapins and newspapers sooalans kes, 2 roms Chek mtr, fant sand tare whe To ep hing stable Buyers an ee topther ‘The experene of cq “That waste cam he asi (a cot, of cour) by basing thee sanry Inventories pce na inventory Se ue pw for oer re Of coun, sure of econo im sarc aah oly ith Stndandved gre. Anther aay in hi sets cane stat might he cal sent ping: sing hepa fhe eae Sonpty dines at thw meted mer pres Tse pret hh Search for Quay ‘Oty with strictly omgscom gd. he Cnr Meter she, o reas homoge pes ie sigan ahs by Profesor Cala, fea ber ov seller mers only sn pie Inala ces he ay Ce pred Iso iporanes. smash more ptt han ve The mst como device 1 nse gua is a exit opt seuany the perfomance of the pric! paarntet or» pea Tia reduces the costo sfrioe gusty thin thal perl Lo he ac Nenimce nf exrcing the enon (aig the ater for “ee {ies prea epi. ery sel who ws to moins reption Foray prisons rat fst an ip waranty: 9 wing to make od pats that so mt mee pt te pened uty. Oten the warranty poled by the vt guy Ietcandiser wl htt ae the earn of pst red Shi a mete ror a ote of ta ie” Advertising Advertsing may be dened at the prin of sfermation om the aly and yeas 8 comes, Advertsing fen send ‘ch parla chance communist sch asthe nearer the V'commercstsnmancenent, bat the sane ppusee ese hy ter methods. The lene rpresetiog pret fo syste pei sy prvide lft and alan crs eto otal Batis) Pale canter italy Tall tne supe oir Fanon about themes, Astvws ake enenve tus fas and TV ton to sll thar hak ‘Many rt have sid that the aman of information in many aerizement enehgi snd te tes tha ffosmaton alse trmileiding Much thi cre shied po muesli ‘fhe fonction of adverttytgnencnc cf ahertang Pip Neon has deve an miatng sition btwn in type of grads the thal can he ga ttetne of prease ch tah be clled pci pos a thos tha cane dpe oly ahr USC ald esprence pod). These nf spent sn be jue int Stowe the taste fa rors food ca he aged ony the ex” Of curs, there ate horderine gods oe cin jug the ger ero Iman ofan auton t,t ot emai dab. “Ie avertnanents or pectin pone the ens the Lind of and ti a5 wel wer fsb Any Inge meee faon ef 8 sia hain ort pce alle dete Ble phase and hence Weald he sedteating The station ret fe Expense gine: ho the fuper cold vel epic axes of Sniy and therfore weak dssomt thn as mee serving ste Items The asurance aqui must be provid hy tne rene Bytaing tat the slr hw een the ses forty yee tat {he eon of the eg tems that nev sane eve Hf he as these properties 1 mt ae ad ny epeat sles sos sl tas eer Widely tested Even the endorsement of verge hy 42 ‘apenneclbniy sme mnt te rut ok) ‘Advertsing ad sng actitypeneraly willbe psu ie any ter pretest unt the expected stars and eo ant Ine are equated at he mtn. ts common ewe ht kro may a i ncresing an then decessng. aga er where se este the maria tun of dele advertnng by he nts in weap ing utp conta “he rtm fom given aretsement wll accve gray ove, time Lex ge asm tat the cotta of averting fo 3h 5101000 yeaa that iw reach 20 percent of potent saemer, ‘sho number tan. Moree ssn fst each ear 3 percent fe Sslomers cor move may ad re replaced by Bhs wr man, that they fore he prt ence thy he ese of (Fopsting St he ess frog if the perm has son the avestscnen see fines) 1 tthe st yer, 020% 200,04. at informe. 2 the ssond ye, 1098 = 0,00 stoners ar il infor 5000 ‘New ttm ae 8330000 100 Previously ninformal cosers = ‘093 Teo = 152000 20 « 162000 ynnfemed canter na “otal informed a0 3. nthe did sae 1098 7. caters ate sti ifort a0 ‘New custome ae an 100 Preis uninformed customers ~ 095 ‘Ginn "sna or 28120 (or. tote pi ther re 20000 ~ 6680 = 133120 unformed estes) (020 x 133,20 uniformed eto 26004 “Ta informed 1308 This process can he comin, oye the sof numbers of infer asomers piven Tae 145 I venta guitar each ca 1000) "iw cstomers eer the markt ele thse wh eve 5 percent ‘6667 informed customers (= Rt lave or forget the pro. The umber of uniformed eatomers e446, mae pk 10.000 new estos, who race L233 press sfomed customers and 143 (= 00 33,33) prev wierd eames as 31,667 (= 098 4,33) previuly uninformed ctstomes. ‘The 20 percent of thse 4.667 uninformed customers equ 831, wha ‘acly replace tore previ frre atone Wi ef o fo the product. Te accumulated edersing capital comes ofthe sale being town by T6467 enters a depress the fate 3 Prrcen a year Stace th depecntn eae ae by noe oer fat 810000, the apa alco the esthng 30 es 10,00 ors2 mon I cusomes tun ver o forge ikl of course the daresiation rate wile higher andthe apts aie i be sal. But wor thseonto, lrg amounts of averting wl be necesay to retha0y ore than sparen has a Recommended Readings ‘venacumtae Panter of Popa nd fue The ad Oy orn Joona smo Xe eh 1 Po Ran Eo Cir en” en a, er Revie" Pita sy, eA Problems 1 Na he Bde a inthe (27) ake oe eat Nest" Gt Joa Enon ay 1) 10 21 Mint Aa ng Ai at nt "ioral of PiCHAPTER 15 THE DEMAND FOR PRODUCTIV SERVICES Sitansay desing how much of ech productive sre to Buy der tn make tat ouput ive the techgy that wil be elon Hence he demand fortron ar the serves it inthe theory ocr and now we hl ent the demand se expe. “tn Star Ni sranahably modes gn atl he eae mt rood if hing coed the diction betwee the law of pro ont the la of dation, ‘ortnouldge the laws of ane ugeing New poses i. Demand ler Compton Po Miwa mistaken A sciey ean manipatte hoth piston and >ne ayy etn Rohe ie 3 eka